A joint tenancy exists when two or more people share ownership of an asset, typically a house or other real estate. It can be established at the time of purchase or created at a later time if the owner decides to give away part of the property to one or more people.
Once two or more people co-own real estate, they are considered joint tenants, and their relationship is known as a “joint tenancy.”
A common type of joint tenancy is joint tenancy with rights of survivorship. To create this type of tenancy, the co-owners must include express survivorship language in the deed. In a joint tenancy with rights of survivorship, when one co-owner passes away, the remaining co-tenant or co-tenants are the sole owners of the property.
Many people who use joint tenancy for their homes or other properties as an estate planning strategy often do so because they believe it’s an effective way to avoid probate. While joint tenancy with rights of survivorship may help to delay probate for an asset, it unfortunately does not prevent the cost, time, loss of publicity, loss of control and hassle of probate in the long run.
For example, spouses who own a home as joint tenants with rights of survivorship typically include language that provides the surviving spouse with her husband’s share upon his death so that she becomes the sole owner.
While this type of joint tenancy can delay probate, it does not allow the owners to completely avoid it in the long run. When the first owner passes, like the husband in the example above, then it is true that his interest will pass to his wife outside of probate. However, when the wife passes, the home will be subject to probate unless she takes other estate planning measures.
In a joint tenancy with rights of survivorship, the last surviving owner must take action in order to completely avoid probate.
Another drawback to holding a property in joint tenancy is that the entire property may be used to satisfy the debts of one the joint owners. This often happens when a parent includes their adult child as a joint tenant of their home, bank account or other property. If that child is on the losing end of a civil lawsuit, files for bankruptcy or goes through a divorce, the jointly held property becomes an asset that is available to satisfy the child’s debts.
A joint tenancy situation could also cause unintended consequences for Medicaid qualification. First, when applying for Medicaid, it could be problematic if the applicant’s home is owned by people other than his or her spouse. While the value of your home is typically excluded from Medicaid qualification calculations, having additional owners like your children on the deed could mean that you cannot exclude its value. Also, if you create the joint tenancy by gifting part of your home to your children within five years of applying, it could result in a penalty period where you must wait longer to receive any Medicaid benefits than you would have otherwise.
While joint tenancy may be considered by some an estate planning tool, you will see from the information in this booklet that it is far from ideal as a strategy on its own. The complexities of owning assets, including real property, as joint tenants with rights of survivorship depend on each individual’s situation. You should seek the advice of an experienced estate planning attorney to ensure that your personalized needs are addressed and wishes carried out.