When most of you bought your first home, you probably signed a deed as a joint tenant next to your spouse’s signature. That’s the way your parents and grandparents did it, and the real estate agent told you it would protect the surviving spouse from probate court after one of you dies.ThinkstockPhotos-474298176

It’s not unusual for the surviving spouse to assume that because joint tenancy worked well to avoid probate the first time, it will work just as well twice. In thinking this, the surviving spouse adds an adult child to the deed.

But there’s a trap in joint ownership with a child that you might not know.

Whenever you add a child onto the title of a property, the child is given immediate ownership interest in the property. The child can use the property for his or her own purposes and the child’s creditors can come after the property.

You can’t remove the child from the title without his or her consent or a court order. Plus, there can be serious tax and government benefit consequences associated with the transfer.

Dad’s Dutiful Daughter

Here’s a hypothetical to consider:

Five years ago, Edward became a widower and sole owner of a home and three rental properties he purchased with his wife. Edward has two adult daughters, Gwen and Stacy. Stacy has three minor children.

Edward is disabled. Gwen visits daily to do light housekeeping and processes his bills and the bookkeeping for the rental properties. Edward assigns her as joint tenant on the deed to his home and for the rental properties. Stacy lives in another state and isn’t involved in caretaking or the properties.

Edward’s Will indicates that he wants both daughters to benefit equally from his estate and for a portion of its value to be set aside for his grandchildren. Despite this, Gwen will legally own the properties upon his death. The joint tenancy could cause Edward’s other daughter and grandchildren to be unintentionally disinherited.

Disaster Strikes, Estate Targeted

However, while Edward is still alive, Gwen causes an automobile accident. She is unable to pay her medical bills and her debt goes into collections. The other driver in the crash was seriously injured and sues Gwen for damages. During this lawsuit, Gwen’s husband files for divorce, seeking half of his wife’s assets.

Any property she owns, including assets she shares with her father, is in jeopardy of being seized.

The Joint Tenancy Trap

Wanting to protect his estate, Edward decides to remove Gwen from the joint tenancy and then sell the properties. However, Gwen refuses, saying she deserves half the assets as payment for her caretaking duties. Edward must seek a court order to remove her from the deeds.

Even if Gwen had never faced debt problems, a nasty divorce or lawsuits, Edward’s final wishes for his estate might still have remained in jeopardy.

As you can see from this extreme example, the downsides of joint tenancy far outweigh any upsides. I urge you to consider these risks carefully before holding property in joint tenancy with an adult child.

There are trust-based estate planning strategies that would have protected Edward from losing control over his estate as a result of joint tenancy with a child.

We hope this information is useful to you. If you have any questions, please don’t hesitate to contact our office and schedule a consultation.

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