By Lori L. Millet, J.D., LL.M. ABQ Elder Law, PC
You may have heard that joint tenancy is a good way to avoid probate and simplify your estate plan. This is not always the case, and fixing the bad consequences of such poor planning is frequently not possible.
Joint tenancy is a way to hold title to land or financial accounts as a form of coownership. Upon the death of one of the joint owners, his ownership interest disappears and is automatically transferred to the surviving owner(s). Thus, if father and daughter own the property as joint tenants, when father dies, the daughter automatically owns the money or land.
Money in bank accounts is deemed to be held proportionately by each joint owner even if the other joint owner did not deposit his own money in the account. In other words, a $10,000 bank account is deemed to be owned ½ and ½ by parent and child even if child did not deposit any of his own money in the account.
Joint tenancy is a good way to hold title between spouses. When one spouse dies, the other spouse does not have to do anything to own the property outright other than record the death certificate. Similarly, for a bank or investment account, the survivor shows the banker the death certificate and all the money in the account is his or hers.
So, what can go wrong? The following are true stories I have encountered over the years:
- In the father-daughter example above, father trusted daughter to let his second wife continue to live in the property. Unfortunately, daughter evicts stepmom from the marital residence.
- Two sisters, both single and of very modest means, owned all of their respective bank accounts as joint tenants. Despite the joint tenancy ownership, each sister kept her money separate. One sister became ill had to go on Medicaid. Medicaid counted both sisters’ bank accounts as available resources to pay for the ill sister’s care and imposed a penalty period. The money in all of the accounts was deemed to be available to the ill sister.
- Mother put daughter on her bank accounts as a co-owner so daughter could write checks for her. Daughter got divorced. Half of the money in Mom’s bank accounts were deemed daughter’s assets in the divorce.
- Similarly, in another case, daughter caused a car accident and the other driver obtained a judgment against daughter. Mom’s money was deemed an asset available to satisfy the judgment.
- Finally, another example is when daughter had to file bankruptcy. Mom’s money was considered an asset of daughter’s subject to daughter’s creditors.
- Father put son on his investment account and trusted son to share the money in the account with his siblings. Son had no legal obligation to share the money when father died, and refused to do so. Even though father’s will directed his estate to be divided equally among his children, this did not happen because joint tenancy ownership (as well as payable on death beneficiary designations) overrides any directive in a will.
- Grandmother put grandson on her savings account. Grandson withdrew most of the money and refused to return it. Grandmother was counting on that money to live on for the rest of her life.
- Mom put son on her bank account as a way to avoid probate. Two years later she had a stroke and had to go on Medicaid. Medicaid would not approve the application because Mom was deemed to have transferred half of the money in the account to son as a “disallowable transfer”.
How do you avoid these issues?
- Have a well written power of attorney that a trusted child can use to write checks for you. Be sure the banker does not automatically make child a co-owner instead because this frequently happens. An agent under a power of attorney is not deemed to have an ownership interest in the account.
- Name payable on death beneficiaries that match your estate plan instead of “trusting” one child to share the money or property with others.
- If avoiding probate is important to you, consider using beneficiary designations, a transfer on death deed, or trust. Be sure you know the pros and cons each option.
Every situation is different. The internet has a lot of bad information and bad or outdated forms. Consultation with an attorney knowledgeable in estate planning and the consequences of your choices is critical to ensure your goals are met.
