Joint tenancy is a type of ownership arrangement where two or more people (or entities) own an asset at the same time. Frequently, this type of ownership occurs with properties whose ownership is set out in a deed (such as real estate.) Joint tenancy with rights of survivorship (“JTWROS”) is a specific variety of joint tenancy arrangement where, when one joint owner dies, ownership of the asset automatically passes directly to the remaining joint owners who still survive.
JTWROS offers some advantages, mostly stemming from the simplicity of transfer that occurs when an owner dies. When that happens, the remaining owner (or owners) may assert their control over the asset simply by offering proof of their ownership (the deed) and proof of the joint tenant’s death (the decedent’s death certificate.) This process is often quick and inexpensive. Additionally, when one joint tenant dies, his or her creditor’s rights against the property die with that person.
JTWROS also comes with risks. When lay people speak of “adding” someone (frequently a child) to the deed of a property they own, they often mean creating a JTWROS. People taking this step as a method of estate planning may think of the property as “theirs,” but legally, that parent has actually made their child a co-owner of that property, which gives the child as much legal control over that property as the parent holds.
This has several consequences that people sometimes fail to consider. For instance, the value of that legal interest granted to the child is considered a gift and may be subject to federal gift taxes, or at least gift tax reporting requirements.
What’s more, “adding” someone as a co-owner in a JTWROS arrangement could present liability issues. If the child is married but later divorces, that property may be subject to the asset division order of the divorce, and the child’s ex-spouse may end up with a partial ownership of that property. If the child is sued, and loses, the property may be at risk as a result of the judgment against the child. The child is also free, from a legal perspective, to mortgage the property.
In short, using JTWROS as an estate planning method has very distinct pros and cons, which should be weighed carefully by any consumer in consultation with their attorney