Disadvantages of Joint Tenancy

When a person passes away, her assets are divided into two categories: probate assets and non-probate assets. Probate is the process through which a court or a government officer determines how to distribute a decedent's property based on the provisions of her last will.  Non-probate assets are those that go directly to beneficiaries without going through probate.

One common type of non-probate assets are property that is held in joint tenancy.  Many couples have joint bank accounts and jointly-held primary residence.  No doubt joint accounts are convenient and simple to maintain.  However, there are also disadvantages to hold property in joint tenancy.  Below are some shortcomings of joint tenancy that one should consider before using it:

Loss of Control

First of all, once property is transferred to another in joint tenancy, one cannot change her mind.  The new joint owner or owners will have equal rights over the property as the original owner. After the transfer, the original owner must get permission from the other joint tenants before selling the property or taking out a mortgage on the property.  However, the new tenants may now transfer his or her share of the property to a third party without the original owner's consent.  If so, the original owner is forced to co-own the property with others in "tenancy-in-common".  If that happens, features such as rights of  survivorship will be gone. 
Subject to Creditors and Debts
Secondly, creditors can go after the joint property if one of the joint account owner is in debt.  For instance, if a joint account holder owes the U.S. government taxes, the IRS can put a lien on the joint property.  Similarly, if a legal judgment has been entered against one of the joint owner (for example, after a bad car accident), the joint property is subject to attachment by the legal creditor in order to satisfy the judgment. 
Family Member May be Disinherited
Sometimes joint tenancy may also cut off one's intended beneficiaries such as children and spouse. For example, a person may want to give the money in his savings account to his children.  In fact, the person specifically writes it down in his will.  However, since the savings account is held jointly with his wife, when he dies the money held in the account automatically will go to his surviving spouse rather than his children.

The issue becomes more important when second or third marriages are involved. In the above example, if the person has children from his first marriage, and before he dies, he asked his wife to use the money from their jointly account to care for these children.  However, after he dies, there is no guarantee that the spouse will follow his instructions after taking control of the money.

Unused Estate Tax Excemptions
Both federal and state laws allow an amount of exclusion (or exemption) against estate taxes for each person at his or her death. For instance, in 2017 the federal estate and gift tax exemption is $5.49 million.  State exemption amounts are usually smaller.  However, if a married couple hold their property in joint tenancy, they will not be able to take advantage of their federal and state estate tax exemptions. When the first spouse dies, any "unused" exemption amount will just be wasted.  
Unintended Gift Tax Consequences
Changing ones property from solo ownership to joint tenancy may result in unintended gift taxes. This is because when a person "adds the name" of another person such as his child as joint tenant on his property, he is in effect making a gift of one-half the value of the property.  Hence, a gift tax could have been resulted in this situation.  There is an exception. Transfers to ones spouse who is a U.S. citizen is not subject to gift taxes. 

Disabled Joint Tenants
When a joint owner of a joint tenancy becomes incapacitated to the extend that he can no longer take care of his financial affairs, the probate court could step in and set up a guardianship or conservatorship to manage the assets.  These proceedings usually take a while to complete and the underlying assets would be tied up for a long time.  

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