Assets Not Controlled by a Will, Part 2: Joint Tenancies with Rights of Survivorship
Last month’s blog article introduced an interesting concept: a will doesn’t necessarily control the disposition of everything a person owns. That article focused on assets such as retirement accounts, annuities, and life insurance policies, which all pass according to beneficiary designations on the accounts/policies rather than by the terms of a person’s will. This month, I’ll discuss how assets titled in the names of two (or more) people as joint tenants with right of survivorship also pass without regard for the terms of a person’s will. I’ll also go over some of the pros and cons of this type of ownership. If you’re interested in learning more about the role rights of survivorship play in your estate plan, please give me a call or send an email to schedule a free consultation.
It is most common to see ownership as joint tenants with right of survivorship in the context of financial accounts and real estate (though vehicles can also be owned this way). Joint tenancy with right of survivorship essentially says “when one joint owner dies, the surviving joint owners automatically receive the deceased owner’s share of the property.” To establish this kind of ownership arrangement, the documents establishing the financial account or the deed conveying the real property will need to clearly express the intent that the co-owners will have the right of survivorship. Otherwise, the owners will hold the property as tenants in common, which is a different variety of ownership with its own pros and cons. Note that there is a third variety of ownership called tenancy by the entirety which is only available to a married couple. These other types of ownership may warrant their own blog posts in the future.
Rights of survivorship can be useful estate planning tools. They allow a deceased person’s interest in the jointly owned property to pass to the surviving joint owner(s) without that interest having to go through probate. While this is a great feature, it comes with the same sort of problem we saw in the article about beneficiary designations: the right of survivorship overrides any provision in a will which would otherwise direct the disposition of the asset. This is not a bad thing per se, but it’s something that should be considered in the context of an overall estate plan. For example, a person who wants to treat all of their children equally in their estate plan should think twice before making one of the children a joint tenant with right of survivorship, as the property received via this right of survivorship will not automatically be credited against whatever the child receives under a will saying “I leave everything equally to my children.” That person might instead consider making all children joint tenants with right of survivorship, but even this might not be the straightforward solution it appears to be at first glance…
Imagine that the parent in the last example has three children. The parent and the children co-own a brokerage account as joint tenants with right of survivorship. If the parent dies, the children will continue to own the brokerage account as joint tenants with right of survivorship. Unless some affirmative step is taken to end the joint tenancy, then when one child dies, that deceased child can’t leave their interest in the brokerage account to anyone else (such as the child’s own children) under their estate plan unless all other joint tenants have already passed away. The parent who established this four-way joint tenancy probably wasn’t aware of this possible outcome when the joint tenancy was established, or else the parent might have considered alternative ways of passing the assets in the account, including ways which would have just as effectively avoided probate (such as use of a revocable trust).
Another estate planning consideration has to do with owners dying “out of order.” If, for example, a parent creates a joint tenancy with right of survivorship between parent and child, parent probably does so with the expectation that parent will die before child and child will take full ownership of the property at parent’s death without the need for probate. But if child dies before parent, now full ownership belongs to parent, and the property will end up in parent’s estate if no further action is taken.
If we look beyond the confines of estate planning and probate, we’ll see that there is even more to be cautious of when dealing with joint tenancies with right of survivorship. Some (but not all) of these issues are listed below. A thorough discussion of any of these points is beyond the scope of this blog post. Still, it is helpful to at least be aware of the kinds of complications a joint tenancy with right of survivorship can present. Anyone entering into such an arrangement should consult with an attorney to make certain that all of the risks are understood and planned around to the greatest extent possible.
A few additional concerns stemming from joint tenancies with right of survivorship:
Property owned by joint tenants with right of survivorship can be pledged by one joint owner, binding all other owners, and the debts of one owner may put the entire property at risk.
If joint tenants own any sort of financial account together, there is always the possibility that one owner might “empty out” the account, taking all assets including those contributed by the other joint tenant(s).
If two (or more) unmarried people own a bank account as joint tenants with right of survivorship, gift tax issues may arise when money is deposited by one owner and withdrawn by another owner.
If a vehicle is owned jointly and one owner is at fault in an accident, the other owner(s) of the vehicle may be held responsible along with the owner who actually caused the accident.
If entered into with awareness of the possible risks, joint tenancies with right of survivorship can be useful tools in a person’s estate plan, providing surviving owners with immediate access to property without the hassle of probate. However, other strategies may produce similar results with far less risk. To learn more about joint tenancies and other estate planning techniques, please consider getting in touch to schedule a free estate planning consultation.
The information contained in this blog post is intended only as general legal information and should not be construed as formal legal advice on any matter, nor should its presentation be construed as intent on the part of The Law Office of Ryan A. Layton, PLLC to form an attorney-client relationship with any user of this website. For more information, please see this disclaimer.