Part 3 of a 4 part series: Estate planning decisions are very important but are not always simple. Using joint tenancy to avoid probate fees can sometimes bring complicated problems.
They may have been told that it is a good idea to add their child or all of their children to their title as Joint Tenants. Under the right of survivorship, there are no probate fees to be paid since the property passes to the survivor without becoming part of the deceased’s estate. However this is not as cut and dried as it seems. There can be some unforeseen repercussions and problems that may arise if this is done without guidance from a trained professional.
When you are considering the option to place a child on title it is a good idea to ask yourself: How much trust do you have in that child? Can you depend on them to take care of you and your interests? You must remember that when you and your child become joint tenants there is a loss of control over your assets. You will no longer have the sole opportunity to make decisions about your estate or even if you can sell the family home.
Placing a child on the title of an asset may also trigger an income tax burden. The 50% interest in the property transferred to the child is deemed to have been sold at its fair market value and unless the asset is the parent’s principal residence, a portion of any capital gains will be added to the parent’s income. This could result in you having to pay the tax even though you received no payment from the child.
Additionally, your estate can be exposed to the creditors of the people you place on title. For example when you made your child a Joint Tenant, their marriage was stable but since then, they are going through an extremely acrimonious divorce. The divorce settlement could allow your soon to be ‘ex’ in-laws to be able to place a claim against your estate.
Or, perhaps you decide to remarry and you make your new spouse a Joint Tenant. By doing this, you are exposing your estate to their creditors. Moreover, through the ‘Right of Survivorship’ rules your new spouse’s family could benefit from your estate rather than your own children.
However, if you decide to go ahead and make one of your children a Joint Tenant it is essential that your intentions are crystal clear. If not, the other siblings could argue that the child on title simply holds the property in trust and they are all eligible for an equal share of the estate. If they start arguing, probate fees and other costs will start to mount.
Therefore if you fail to document your intentions, it is very possible that by adding your child as a joint tenant, you are creating what is known as a ‘Resulting Trust’. While both parent and child are registered on title as Joint Tenants, the child is essentially a trustee with no right to use the asset or benefit from its income. Once you pass away, your legal interests will pass to your child by the Right of Survivorship, but under a Resulting trust he or she must distribute the assets according to your will.
As you can see your estate planning decisions are very important and by using joint tenancy in order to avoid probate fees (which are just 1.4% of your gross estate) you can get into more complicated problems. To avoid some of the pitfalls of joint tenancy, (more on that next time) your intent must be crystal clear and well documented. This is where I can help you. As a Notary Public, I am able to assist you with your choices when planning your estate and together we can ensure that your wishes are carried out. Ultimately you will be protected and peace will reign in your family.