When some people think about estate planning, their first thought is to hold property jointly with their children or whoever their beneficiaries are in order to simplify the transfer of assets upon death. It may sound like a good idea at first, but upon closer examination there are some important issues that should be considered before using joint property as your estate plan.

• With some assets, designating a joint owner amounts to a present gift of a portion of the asset rather than only creating a survivorship interest. On the portion of the property that’s a gift, there’s no stepped-up basis. Your cost carries over to your beneficiary. When they sell, they pay capital gains taxes. But if they inherit the property directly from you or from your living trust at death, the capital gains are wiped out altogether.
• While the property is in joint names, your beneficiary might be sued, go bankrupt, get divorced, or have an accident that leaves them incapacitated. If so, the assets might become consumed by your beneficiary’s expenses and be unavailable to you, leaving you destitute.
• If your beneficiary has siblings to whom you expect the joint owner to divvy up the assets when you pass away, the transfers are gifts, subject to gift tax.
• You can have a falling out with your beneficiary and they can clean out an account they are listed as joint owner on.
• If your beneficiary dies before you, the IRS wants proof that the asset was bought by you. Otherwise, they’re taxable in your beneficiary’s estate.

You may notice the common issue with every case described above stems from giving someone else access to your assets during your lifetime. I am a firm advocate of protecting your own assets from all the risks out there. I am hard pressed to find a reason to justify taking on somebody else’s risks by naming a joint owner of an asset. It’s risky.

One way to avoid all of these problems is to not use lifetime ownership designations to accomplish property transfers you desire after you pass away. Use a Will or Trust to define your estate plan and coordinate your assets to be distributed according to your Will or Trust. You are not vulnerable to these joint ownership issues when you use a Will or a well designed Trust.

Ready to get started? Call (860) 593-0404 and schedule your consultation today.

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1. Think Twice Before Giving Away Your Home
2. Estate Planning Beyond the Documents – Annuities
3. Revocable Trusts and CT Medicaid