While joint ownership of real estate is a popular method for avoiding probate in the event of an owner's death, this arrangement also has its drawbacks. Generally, real estate may be seized or at least considered as an asset for all owners, including joint owners who were added to a title for the very purpose of avoiding or delaying probate court. In other words, each joint owner adds to the legal exposure of a given piece of real estate.
This article discusses the risks involved in joint ownership and how a living trust may be a better option.
An Example of How Joint Ownership Can Backfire
A doctor and her husband are building their dream home in the suburbs of Atlanta. The loan application is submitted and the closing attorney is instructed to prepare the transfer documents. Both the mortgage and the deed are prepared in their joint names.
This is actually quite a common scenario. However, the couple has exposed their most valuable asset to the liabilities of both partners, including the high lawsuit risks of the doctor. Without proper planning and forethought, this family may be headed towards a forced sale of the home to satisfy a judgment. Not only does the doctor in trouble lose her home, but so does her family.
Ownership in the property may be just the incentive that a creditor or a potential plaintiff needs to pursue a lawsuit. If the joint owner otherwise has no substantial assets, it could be an unexpected windfall and guarantee that a lawsuit will be filed.
But Doesn't Joint Ownership Avoid Probate?
It may avoid probate upon the death of the first owner and if the property is owned as joint tenants with a right of survivorship. But when the second owner dies, the property would still need to be probated. If the property is owned as tenants in common, then probate would not be avoided even upon the first death. This is why a living will may be a better option to joint ownership in many cases.
What Other Problems Can Joint Ownership Present?
In addition to the fact that joint ownership only delays probate until the second owner's death, the arrangement may also present the following issues:
A Better Option to Joint Ownership: How a Living Trust May Help
A living trust is a revocable trust that is set up during your life. Most of your assets are then titled in the name of the living trust. You maintain complete control of the trust during your life and can add or remove assets. Upon your death, the assets in the trust are distributed by your named trustee (usually your spouse) to your named beneficiaries, without probate.
A living trust maintains your family's financial privacy, provides an easier and more efficient administration of your estate, and can protect dependents with special needs. A living trust is easy to set up and maintain and can be changed or canceled at any time.
A living trust is usually drafted to include the following additional benefits:
Looking for a Better Option to Joint Ownership? An Attorney Can Help
You may not be around to explain what you meant when forming a trust, given their very function. A lawyer can help you create a living trust that clearly expresses your wishes in order to eliminate any confusion or chaos after you pass away. Contact a local attorney for a free initial case review of your living trust needs.