The Pitfalls of Joint Tenancy: Should I add another person to title?

Joint Tenancy remains a popular form of property ownership as people tend to elect this form of ownership to avoid probate. Many of my clients stated that when they bought a house, they chose to create a joint tenancy without really going any further as to what that entails.   Joint tenancy with right of survivorship means that each person owns the entire asset (undivided equal share), not just part of it. When one owner passes away, the person's share immediately passes to the other owners in equal shares, without going through probate. We’ve all been told that joint tenancy can be a simple and inexpensive way to avoid probate, and this is sometimes true.

But careful consideration should be made for the potential tax consequences and other problems of joint tenancy ownership. Here are some of the disadvantages of joint tenancy which far outweigh the advantages:

1. Property passes to unintended heirs: A person's Will or Trust does not control who will get it after he or she passes away.
2. There are no planning opportunities: If you become disabled, your joint tenancy property may be tied up in a guardianship or conservatorship proceeding.
3. Probate is at best delayed, not totally avoided: Joint tenancy passes outside all of your planning and avoids probate, but only on the death of the first joint tenant. In the case of a married couple, the first spouse will avoid probate.  But when the surviving spouse dies, there will be a probate.
4. For non-spousal owners, unintentional gift taxes and death taxes can be generated: Often times, a parent designates a child as a joint tenant on the property. Once they are added, the transfer of property may very well be a gift that might have to be reported to the IRS. In some cases, a gift tax may have to be paid. When the parent dies, the child inherits the property, no matter what the parent's Will or Trust says.
5. Selling or Encumbering Property Difficulties: Joint Tenancy makes it more difficult to sell or refinance because it requires the agreement of both parties, which may not be easy to get.
6. Creditors: Joint tenancy is subject to being attached by creditors of either joint tenant.  Often times, a parent will name a child as a joint owner on the property for convenient purposes and to avoid probate on the death of the parent.  However, the child's creditor can attach any property or assets that the child owns jointly regardless of whether the child contributed any funds or live at the property. And vice versa. The parents' creditors can attach and the child may suffer the consequences.
7. Court Judgments: If any owner has a judgment/settlement entered against him, such as from a car accident, business dealings, or divorce proceeding, the judgment holder can execute the judgment against the home or include the home in the settlement.

Joint Tenancy does have its advantages, such as:

1. Simple, easy to understand
2. Inexpensive to create. You don't need to hire an attorney usually.
3. Avoids probate
4. Property may be free from claims of creditors of the deceased joint tenant if no prior lien was attached.
5. Reflects a relationship commitment.

Before placing your property in a certain type of ownership, I highly recommend becoming familiar with all types of property ownership and taking into consideration your objectives and consequences to your heirs.