Joint Tenancy with Right of Survivorship (JTWROS) is a form of joint property ownership available to two or more people and characterized by the right of survivorship. Upon one tenant’s death, the share of the property passes to the surviving co-tenants. There are five requirements for creation of a JTWROS: the right of survivorship and the four unities of possession, interest, title, and time.
For example, 10 years ago, Jack and Jill, unmarried partners, bought a house for $200,000.00 as joint tenants with rights of survivorship. Jill has one son, Adam. Jill unexpectedly dies in a car accident. What results due to Jill’s death? In this scenario, when Jill dies, her ownership interest in the property passes to Jack because, as the surviving co-tenant, only he has the right of survivorship. Jill’s son, Adam, ran out of luck when Jill bought the property as JTWROS.
Many times, people use JTWROS as a measure to avoid probate while creating lifetime ownership rights in property. However, JTWORS has several disadvantages that should be considered, and a few are listed below. It is advisable to consult with a qualified estate planning attorney to review asset titling and potential advantages and disadvantages of structuring assets.
1. Ownership: Joint owners are legal title owners. Determination as to who owns what equitable interest can be tricky. Issues over control also need to be considered.
2. Credit Exposure: Joint owners may be subject to creditor attachment, divorce proceedings, bankruptcy, or other similar liability issues of the other joint owners.
3. Gift Tax: Where the joint owner gifts an interest to someone other than their spouse, this may create a gift tax issue. As such, the owner may be required to file a gift tax return if the gift is in excess of the federal gift tax limitation amounts ($14,000.00 for 2015) as defined by Section 2501 of the Internal Revenue Code.
4. Property Basis: There may be a loss in part of the step-up or step-down basis in the property interest.
5. Probate: Oftentimes, if estate planning action by the surviving joint owner is not taken, probate is not avoided but rather delayed. Even worse, where the property ultimately goes may not represent the intent of the original joint owners.