What Happens With Joint Property?

Virtually every estate administration case we handle joint property, or “joint tenancy” as it is sometimes called.  This is most commonly true when the decedent was married, but often occurs when a deceased parent included a child on their bank account or a friend so that “money is available” when something happens to them.  But, joint property can have unintended consequences to your estate, so it is important to understand the different types of joint property according to a recent article titled “Everything you need to know about jointly owned property and wills” from TBR News Media.

This becomes an important issue because depending on the type of joint tenancy, your Will may or may not be necessary to convey it to your beneficiaries. It is also true that using certain types of joint tenancy may bypass your intended estate plan or have tax, government benefits and other consequences, so it is critical to understand the differences and to ensure the type of joint tenancy you are using matches your plan.

Joint Tenancy with Rights of Survivorship. Joint tenancy with rights of survivorship means that there are multiple owners and that upon the death of one, the other owners automatically become the owner of the account.  This process happens by virtue of the titling, and doesn’t require probate to make it happen.  Usually, a death certificate is sufficient to remove the deceased owner.

Most people assume when they see two owners on a bank account that it is owned as joint tenants with rights of survivorship.  In truth, this is something that you elect when you create the account or add a name, and many times bank personnel elects this without discussing it with you.  The best way to determine if your account has rights of survivorship is to check with account card at the bank, although some statements or accounts will also say “JTWROS.”  That is short for “Joint Tenants with Rights of Survivorship”.

Tenancy by the Entirety. This type of joint ownership is only available between spouses and is not used in all states. It definitely exists in Pennsylvania, and is the default way of taking title to real property that is purchased during marriage.  A local estate planning attorney will be able to tell you if you have this option. As with Joint Tenancy with Rights of Survivorship, when the first spouse passes, their interest automatically passes to the surviving spouse outside of probate.

There are additional protections in Tenancy by the Entirety making it an attractive means of ownership. One spouse may not mortgage or sell the property without the consent of the other spouse, and the creditor of one spouse can’t place a lien or enforce a judgment against property held as tenants by the entirety.

Tenancy in Common. This form of ownership has no right of survivorship and each owner’s share of the property passes to their chosen beneficiary upon the owner’s death. Tenants in Common may have unequal interests in the property, and when one owner dies, their beneficiaries will inherit their share and become co-owners with other Tenants.

The Tenant in Common share passes the persons designated according to their will, assuming they have one. This means the decedent’s executor must “probate” the will for the executor to have control of it. Sometimes this is very critical to leave assets as Tenants in Common because you want your portion of an asset to go to a trust or not to the other owner.

In all of these, it is important to recognize that joint tenants are not always necessary.  First, adding a co-owner could affect your estate plan, as is generally described above.  Also, adding a person is a gift, which may have adverse effects on your beneficiary if they suffer a disability, and has gift tax consequences to yourself.  It may also subject “your” money to the creditors of the new owner.

For those who only want “check writing authority,” it actually is possible in Texas to get authority to sign checks only without being an owner, although most banks encourage joint ownership as it is less risky to them.

All in all, it is important to makes sure that the ownership and titling of your assets fits with your estate plan.  A comprehensive estate plan, created by an experienced estate planning attorney, ensures that both probate and non-probate assets work together.

Reference: TBR News Media (Dec. 27, 2022) “Everything you need to know about jointly owned property and wills”

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Do You Need Power of Attorney If You Have a Joint Account?

Clients often, sometimes at the suggestion of their bankers, add names onto accounts to make money accessible upon the incapacity or death of a parent.  This often leads them to assume they don’t need a Power of Attorney (POA), and they don’t realize that Powers of Attorney are designed to permit access to accounts upon incapacity of a parent. There are some pros and cons of doing this in either way, as discussed in the article “POAs vs. joint ownership” from NWI.com.

The POA permits the agent to access their parent’s bank accounts, make deposits and write checks.  However, it doesn’t create any ownership interest in the bank accounts. It allows access and signing authority.  This is usually what individuals are thinking of when they create these accounts.

If the person’s parent wants to add them to the account, they become a joint owner of the account. When this happens, the person has the same authority as the parent, accessing the account and making deposits and withdrawals.

However, there are downsides. Once the person is added to the account as a joint owner, their relationship changes. As a POA, they are a fiduciary, which means they have a legally enforceable responsibility to put their parent’s benefits above their own.  As an owner, they can treat the accounts as if they were their own and there’s no requirement to be held to a higher standard of financial care.  You can see the following article for more on this point.  https://galligan-law.com/effect-of-adding-someone-to-your-bank-account/

Because the POA does not create an ownership interest in the account, when the owner dies, the account may pass to the surviving joint owners, Payable on Death (POD) beneficiaries or beneficiaries under the parent’s estate plan.

It also avoids the creation of a gift, which may have estate tax or Medicaid ramifications.

If the account is owned jointly, when one of the joint owners dies, the other person becomes the sole owner.

Another issue to consider is that becoming a joint owner means the account could be vulnerable to creditors for all owners. If the adult child has any debt issues, the parent’s account could be attached by creditors, before or after their passing.  I worked closing on a case with the opposite scenario, a creditor a parent collected money that otherwise would have gone to the children.

Most estate planning attorneys recommend the use of a POA rather than adding an owner to a joint account. If the intent of the owners is to give the child the proceeds of the bank account, they can name the child a POD on the account for when they pass and use a POA, so the child can access the account while they are living.

One last point: while the parent is still living, the child should contact the bank and provide them with a copy of the POA. This, allows the bank to enter the POA into the system and add the child as a signatory on the account. If there are any issues, they are best resolved before while the parent is still living.

Reference: NWI.com (Aug. 15, 2021) “POAs vs. joint ownership”

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