Joint tenancy: a bitter inheritance

I remember as a kid when my siblings and I would get into fights while traveling on trips, and my father would threaten “Do I need to pull the car over?” That was always enough to stop the dispute. Improper estate planning can bring back those memories – by rekindling childish jealousies among adult children.

But this time, if you are the parent you won’t be around to intervene. Instead, the courts will be called upon to manage the fight, and the resulting hurt between your children could last for a lifetime.

In a reported court case, two siblings filed lawsuits against each other over the property of their father, a real estate developer. His “estate plan” consisted of simply adding his daughter’s name to mortgages and bank accounts. This was a joint tenancy with the right of survivorship held by the daughter.

Joint tenancy arrangements are often used as an estate planning shortcut. Elderly parents often need help managing their financial affairs, and believe that adding one child’s name to property allows for co-management of assets while facilitating a crisis-free inheritance. I have had prospective clients tells me that they will leave one child as a beneficiary on all of the assets, and that child will “split the inheritance with his or her siblings.” This types of planning can often open a Pandora’s box. What if the child does not want to transfer any of the assets to siblings? Or, the child has creditors or a divorcing spouse that asserts a claim on the assets? Or, the child dies before making the distributions to siblings? There are also possible estate and gift tax consideration that can come into play in certain scenarios.

In the case I referenced above, the father died and the daughter assumed she could claim all joint property as her own. The brother had a different view. He argued that the joint tenancy arrangement had been merely for management convenience, and that a wholesale ownership transfer to the daughter was never intended by the father. At trial, the daughter conceded she had never been authorized to withdraw funds without the father’s approval, and the court ruled in favor of the brother. For a true joint tenancy to exist, the court said, the daughter would have had to obtain an ownership interest through a purchase or as a completed gift.

The real tragedy in these types of cases is the serious family rift that results and the legal fees that could have been avoided. There are better solutions. The father could have eliminated the joint tenancy arrangement and granted a power of attorney to the daughter, or created a Revocable Trust and named his daughter as Co-Trustee. There are some situations where joint-tenancy planning may make sense, such as with a parent who has a single child. However, even in those situations, it would be prudent to discuss all options with an attorney so that you can make an informed decisions, understanding the implications of your choices.

If you would like more information on creating an estate plan, or to review your current plan, please call or email us at Fidelis Law.