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The Potential Consequences of Joint Ownership
The Potential Consequences of Joint Ownership

Here are some drawbacks to relying solely on joint ownership.

Updated over 11 months ago

Joint ownership of property, such as joint tenancy, tenancy in common, or tenancy by entirety, can have some advantages. However, it can also have some disadvantages when compared to having a comprehensive Trust-Based Estate Plan in place.

It's important to note that the specifics can vary based on jurisdiction and individual circumstances. Here are some general considerations.

Disadvantages

Limited Control:

  • Joint Ownership: Joint owners each have equal control over the property. This may lead to conflicts or decisions that are not aligned with the original owner's intentions.

  • Revocable Living Trust: The trust creator retains more control over the trust assets during their lifetime, and they can specify detailed instructions for distribution after their death.

Inflexibility in Distribution:

  • Joint Ownership: Jointly owned property typically passes directly to the surviving owner(s) outside of probate. This can be inflexible and may not allow for more detailed distribution plans.

  • Revocable Living Trust: With a trust, you can set specific conditions for distribution, establish staggered distributions, or provide for contingent beneficiaries based on various factors.

Creditors and Liabilities:

  • Joint Ownership: The property may be exposed to the creditors or legal issues of any joint owner, potentially jeopardizing the asset's integrity.

  • Revocable Living Trust: Assets in a trust may have better protection from creditors or legal claims against the other owners.

Step-Up Cost Basis Issues:

  • Disadvantage: Jointly held property might not benefit from a stepped-up cost basis for tax purposes at the death of the first owner.

  • Consideration: This can have capital gains tax implications when the property is later sold.

Unintended Consequences:

  • Joint Ownership: Unintended consequences may arise if one joint owner becomes incapacitated or passes away. For instance, the surviving owner might exclude other heirs.

  • Revocable Living Trust: A trust can include provisions for incapacity planning, ensuring a smoother transition of control or management.

Unequal Treatment of Beneficiaries:

  • Joint Ownership: Joint ownership may not provide flexibility in treating beneficiaries unequally or addressing specific needs of different heirs.

  • Revocable Living Trust: Trusts offer more customization, allowing for specific bequests, staggered distributions, and addressing individual beneficiary needs.

Lack of Privacy:

  • Joint Ownership: Changes in joint ownership are often a matter of public record, lacking the privacy that a trust may afford.

  • Revocable Living Trust: Trusts provide a higher degree of privacy as their details generally remain confidential.

Potential for Disputes:

  • Joint Ownership: Disputes can arise among joint owners or their heirs, leading to legal challenges.

  • Revocable Living Trust: Well-drafted trust documents can help reduce the likelihood of disputes and provide clear instructions for the distribution of assets.

Advantages

Avoidance of Probate:

  • Joint Ownership: Assets held in joint tenancy or tenancy by the entirety pass directly to the surviving owner(s) without going through probate.

  • Revocable Living Trust: Similarly, assets in a revocable living trust also avoid probate, providing a streamlined transfer of assets after the trust creator's death.

Simplicity and Cost Savings:

  • Joint Ownership: Establishing joint ownership is often a straightforward process, and it may involve lower initial costs.

  • Revocable Living Trust: Creating a trust may involve more detailed documentation and legal work, potentially resulting in higher initial costs.

Immediate Access to Assets:

  • Joint Ownership: The surviving joint owner gains immediate access to the jointly held assets, which can be beneficial for addressing immediate financial needs.

  • Revocable Living Trust: While assets in a trust can also be accessible relatively quickly, the process may involve additional steps compared to joint ownership.

Automatic Succession:

  • Joint Ownership: Upon the death of one joint owner, the surviving owner(s) automatically inherit the deceased owner's share of the property.

  • Revocable Living Trust: Succession in a trust is also typically automatic, with the successor trustee taking over management and distribution responsibilities.

Potential for Step-Up in Basis

  • Joint Ownership: In some jurisdictions (typically those with community property), joint ownership may provide a step-up in the tax basis of the property to its current market value upon the death of one owner.

  • Revocable Living Trust: Assets in a revocable living trust also receive a step-up in basis upon the death of the trust creator.

Flexibility in Joint Management:

  • Joint Ownership: Joint owners have the ability to jointly manage and control the property during their lifetimes, making decisions together.

  • Revocable Living Trust: While the trust creator can manage trust assets during their lifetime, the structure may involve more centralized control.

No Need for Probate Administration:

  • Joint Ownership: Upon the death of one joint owner, there is no need for a separate trust administration process. However, after all owners have passed, there would be probate administration.

  • Revocable Living Trust: Trust administration is necessary after the trust creator's death, involving the management and distribution of trust assets by the successor trustee.

Potential for Automatic Survivorship Rights:

  • Joint Ownership: Survivorship rights automatically apply to jointly owned property, simplifying the transfer of ownership to the surviving owner(s).

  • Revocable Living Trust: The trust terms will control after the death of the trustor.

It's important to note that the advantages and disadvantages of joint ownership and revocable living trusts can vary based on individual circumstances, state laws, and specific estate planning goals.

While joint ownership can be a simple way to pass property to heirs, it may not offer the flexibility, control, and protection that a revocable living trust can provide. Consult with your estate planning and financial professionals to determine the most appropriate estate planning strategy for your needs.

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