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”

Continue ReadingWhat Happens With Joint Property?

Inherited Property? What You Need to Know

There are many options for what to do with inherited property, but they depend on debts, costs of property, beneficiaries and your needs.

Many clients wonder what to do with inherited property, particularly real property like a house.  There are choices, and they depend on several factors. Are there other siblings who also have inherited portions of the ownership of the house? Is there another owner who needs to be bought out? Can the heir afford to take on the responsibilities and expenses of a home? Is someone else already living there?  These are all questions presented in the article “What to do when inheriting a house” from The Mercury.

There’s a tax issue to consider, for starters. Property that was titled in the name of the decedent at the time of death or is part of their estate taxable estate and then inherited, receives what is called a “step-up” in basis. This means that there is no federal tax due on the appreciation in value from the time the person purchased the home to the time that the person died.  They may also be state taxes as well.

Let’s say the person bought the home for $100,000 and at the time of her death the property is worth $300,000. The federal government will not tax the $200,000 difference between the original value and the DOD (Day of Death) value of the home. If the heir obtains an appraisal shortly after the death of the home owner and then moves in or if you already live there and the house is transferred into your name, the “clock” starts running again for another tax break, which is an additional $250,000 exclusion from capital gains on resale after you have lived there for two years.  If the property is sold shortly after the person’s death to a third party in an arms-length deal, the sales price would be the DOD value of the inherited property.

Now, this all assumes that any other beneficiaries have been satisfied as to the ownership of the house. A good elder law estate attorney will be able to help with the details, including the transfer of title.

Another issue: is there a mortgage on the house? If so, the new owner may need to satisfy the lender and refinance. If the heir has enough money to meet monthly payments, a strong credit rating to be able to get a mortgage and enough income to maintain the home, then it should be a relatively simple transaction.

Have the home inspected before moving in. Is the inherited property in good shape? If repairs need to be done, are they budget-friendly, or will they make the inheritance too expensive to be financially viable?  Who will pay for it?  The estate, the heirs, or a new owner?

Property maintenance is another consideration. If the estate can carry costs associated with the property until the property is sold and if the estate can pay for repairs, upgrades and maintenance so the house can be sold for a good price, then that is a reasonable approach to take. If there are other beneficiaries, they should all part of a discussion about how much money is worth investing in the house and what the return on investment will be.

One key concern that I’ve told countless clients over the years is decide early what to do with the inherited property, and stick with the plan.  Maintaining the property is time consuming, potentially costly, carries a risk in the form of liability and may prevent the estate from making liquid distributions if it isn’t sold.  Some of the worst estate administrations I’ve dealt with involved not deciding what to do with inherited property, and that lead to unnecessary cost and years of administration. So, the executor or trustee should decide earlier what to do with the property.

Finally, if the language of the will says “equally to my three children” or language similar to that and one sibling wants to buy out the other two, then an agreement on the value of the house and a plan for working out timing of the sale will need to be created. An estate planning or elder law attorney will be able to help create a family settlement agreement that will include an informal accounting, whereby all of the heirs receive their fair share of the inheritance and all sign off that they have agreed to the transaction.

Reference: The Mercury (Jan. 15, 2020) “What to do when inheriting a house”

Continue ReadingInherited Property? What You Need to Know