The Pitfalls Of Holding Title To Real Estate As Joint Tenants
By MARK D. KLEIN, ESQ
Many older people add an adult child (or grandchild) to the title of their assets (especially their home) as a joint owner in order to avoid probate.
However, this type of property can create all kinds of problems, including:
1. When a joint owner is added, the original owner loses control. To sell real estate held in joint tenancy during your lifetime, you must have the signature of both joint tenants. If your joint tenant is uncooperative or becomes incapacitated, you may not be able to readily sell or transfer your property.
2. Part of the asset could be lost to the joint owner’s creditors; if your joint tenant has creditor problems, the creditor of the other joint tenant can garnish the jointly held asset to satisfy the debt. This could ultimately cause you to lose the asset!
3. The assets could become part of a joint owner’s divorce proceedings. The last thing you want is to have your property dragged through the divorce court proceedings with its attendant delays and expenses.
4. Individuals often look at joint tenancy as a vehicle to avoid probate. However, when a parent places a child on title as a joint tenant on their real estate, they are often unaware that they have made a gift of one-half of the value of the property. If that value exceeds $14,000 in one year, the gift is a taxable gift causing the parent to have to file a gift tax return.
5. When someone inherits an asset, the cost basis of the asset is the stepped up to current value on the date of death. Say for example that an elderly parent leaves a home to their children that is valued at $400,000 on the date they pass away and the cost basis of the property is only $100,000. (The home was purchased 20 years ago). While the beneficiaries may have to pay estate e taxes depending on the size of the estate, they will not be responsible for capital gains tax on the $300,000 worth of gains. Since they received a step-up in basis, they will only be responsible for gains that might occur from the point they inherit the asset and then sell it. On the other hand, with joint tenancy property only a one-half step up is basis is permitted.
In summary, although there are advantages to using joint tenancy, they are usually outweighed by the disadvantages.
Source: Realty Times