Joint tenancy might be a convenient estate planning shortcut, but it also brings some undesirable risks.
Joint tenancy is a form of ownership of property where two or more people hold title to the property with right of survivorship, meaning than when one of the joint tenants dies, the other joint tenant automatically owns the entire property. California married couples without a trust usually find that they own their home as joint tenants. But joint tenancy can exist between any two owners of real property, whether they be parent and child, or not related at all. A joint tenancy to real property is created when the words “joint tenants” are added to the deed, or “joint tenants with right of survivorship.”
Joint tenancy provides built-in estate planning, in that the surviving joint-tenant takes the entire property without going through probate. So, yes, you can avoid probate by owning your home in joint tenancy.
But joint tenancy has significant problems:
1. Joint tenants are exposed to each other’s creditors. If a parent holds title in joint tenancy with an adult child, that child’s creditors can levy against the property even before the parent dies. For example, if your child gets a divorce, the Court may be able to force a sale of “your” house in order to satisfy a judgment in favor of your child’s ex-spouse, truly a nightmare scanario.
2. Even if the joint tenants are a married couple, the surviving spouse misses out on a future reduction in capital gains taxes because at the death of the first spouse there is a step-up in basis on only half of the property. To avoid this, property jointly owned by married couples in California should normally be titled as “community property with right of survivorship.” Or the property should be held in a trust, with a separate declaration in your records that it is community property.
The alternative to joint tenancy is either to leave a will designating who is to receive the property, or to set up a living trust. A previous post addressed the benefits of a living trust.
Let us know if you have any more questions about joint tenancy.