Probate can be expensive and time-consuming, which is why many people prefer to avoid it when making their estate plans. There are various ways of skipping this court-controlled process, but it is crucial to understand the potential implications of the path you choose.
Joint tenancy is among them. When you list your loved one as a joint owner of an asset like your house or vehicle, they will automatically assume full ownership upon your death. While joint tenancy seems pretty straightforward and convenient, it has some drawbacks you should be aware of beforehand.
Potential risks of using joint ownership to skip probate
Joint tenancy may be a simple way to go about avoiding probate, but you may have to deal with some unintended consequences. First, there might be certain applicable taxes depending on the nature or size of the transaction. Adding another person (except your spouse) as a joint owner to a property or asset may also be considered a taxable gift and may attract the attention of the IRS.
Another disadvantage is that you will have no control over the fate of assets held under joint tenancy. They may sell their interest in the property or transfer it to third parties should they wish to do so – and they don’t need your consent. They may even be able to force a sale.
Additionally, the assets may be exposed to creditor claims. Your co-owner may lose the property to creditors and third parties if they default on debt or other financial obligations.
What are your other options?
As mentioned, joint tenancy is not the only option if you wish to avoid probate. You can achieve similar results using trusts or payable-on-death transfers, among others. The most important thing is that you fully understand how various estate planning tools work before making up your mind.