Dolores M. Coulter

Attorney at Law

8341 Office Park Dr. Ste C

Grand Blanc, MI 48439

Phone:  (810) 603-0801

 Email: coulterdm@sbcglobal.net

Joint Property II

Dolores M. Coulter © January 2008 

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Q:  I want to avoid probate so I added my daughter’s name on my deed and my bank accounts.    When I mentioned this to my friend she said that she had heard that this might not be a good estate planning strategy.   Is that right?

Establishing joint ownership of property is probably the most commonly used informal estate planning technique.  It avoids the time and expense of a probate proceeding to transfer ownership of property to the client’s intended beneficiaries.  The surviving joint owner simply presents a death certificate to the financial institution or, in the case of real estate, records a certified copy of the death certificate. However, as with all estate planning techniques, there are advantages and disadvantages that must be considered. 

If you are considering adding someone’s name to your home or other real estate, you need to be aware of the various types of joint ownership of real estate.  The language in the deed is very important.  If the deed states “joint tenants with rights of survivorship” this means that upon the death of one of the joint tenants his/her share will pass automatically to the surviving joint tenant.  This is usually what clients intend when they add a family member’s name to the deed. However, if the deed simply states “Jane Doe and Susan Smith” with no language specifying the type of joint ownership, this will create a “tenancy in common”.  This means that upon Jane Doe’s death her one-half interest will pass according to her will or to her heirs (if she died without a will), and have to go through probate, instead of passing automatically to Susan Smith.  If the deed simply states “joint tenants” the property will pass automatically to the surviving joint tenant upon the death of the other tenant.  However, unlike “joint tenants with rights of survivorship”, if one of the joint tenants transfers his/her interest to a third party this will destroy the joint tenancy and create a tenancy in common.  In some cases, the client will transfer the property to a family member but will retain a “life estate”.  This preserves the client’s right to possession of the property for the rest of his/her life, with the property passing automatically to the owner of the remainder interest upon the client’s death. 

A disadvantage of adding a family member to your deed is that you will need the consent of that person to sell the property or take out a mortgage or home equity loan.  You have given them a gift of an interest in your property and you cannot take it back without their consent.  If the family member has problems with creditors or files for bankruptcy his/her interest in the property could be subject to attachment (depending on the type of joint ownership).  If the family member becomes involved in divorce proceedings his/her interest in the property might be treated as a marital asset.

One way to maintain control  during your lifetime while still providing for automatic transfer of your home or other real estate upon death is to execute a “Ladybird” deed.  This type of deed is becoming more popular among estate planners.  It is a form of life estate, but you retain not only a life estate but also complete control over the property (to sell, mortgage, etc) during your lifetime.  You do not need the consent of the person you have named as the holder of remainder interest.  If you still own the property at your death, it will then pass automatically to that person. 

If a family member is added as a joint owner on a bank account, each owner has the right to withdraw money from the account.  Just as with real estate, problems can arise if the joint owner has creditor problems or is involved in a divorce.  In some cases the client will add one child’s name as a joint owner, with the (unwritten) understanding that upon the client’s death that child will divide the money among all of the children.  This may create a moral obligation on the part of the child, but it does not create a legal obligation to distribute the money as the parent intended. This type of agreement should be in writing and signed by the client and the other joint owner.  In addition, most banks now offer a “transfer on death” or “payable on death” designation, which means that the account owner can designate who is entitled to the funds after the account owner’s death. 

Adding another person to your deed can have an adverse effect on your eligibility for Medicaid coverage for nursing home care and other long term care services.  The Medicaid rules consider this to be a “divestment” (a transfer for less than fair market value) and it could disqualify you from Medicaid for a period of time.

If you have financial assets that exceed the exemption amount for federal estate taxes you will also have to consider the tax implications of any estate plan.  However the estate tax exemption was increased is $5,450,000 for 2016 so for most individuals there is no need to consider complex estate planning strategies for minimizing or eliminating federal estate taxes.

Joint ownership is a convenient, simple, and inexpensive estate planning tool.  With a proper understanding of the advantages and disadvantages, it can work well for many clients.