By Stephen J. Dunn
I often see older people with other peoples’ names on their property as co-owners. Legally, the ownership is joint tenants with right of survivorship, meaning that upon the death of one joint tenant, the surviving joint tenant becomes the sole owner of the property. If there is more than one surviving joint tenant, they succeed to equal ownership of the property, as joint tenants with right of survivorship.
There are many reasons why an individual would add others names’ to the title of his or her property. For example:
- The property owner may be acceding to pressure brought by others who want the property. Older, lonely people are especially vulnerable to this kind of pressure, as are people in cognitive decline.
- The property owner may see joint ownership as an informal means of estate planning, avoiding the need for an attorney.
Except between spouses (called tenancy by the entirety), joint ownership is usually a bad idea, as illustrated by the following real-life examples.
Joint tenancy of a bank or financial account facilitates embezzlement. Each joint tenant to a bank account has full right to make withdrawals from the account. In one case, after an elderly woman added her son’s name as a joint tenant to her bank account, mysterious withdrawals of $300-$400 each began appearing in the account every couple of weeks. Before long the withdrawals were several thousand dollars each. We reported the matter to the police. The police asked was the son not authorized to make withdrawals, as a joint owner of the account? We were in the untenable position of having to argue that the son’s name was on the account only as a convenience to the mother, for her benefit. But the woman did not even have a power of attorney in place naming the son as her fiduciary. Such a case would be difficult to prosecute.
Once a person’s name is added to the title of property, it can be undone only with his or her consent. In another case, after a woman’s husband died, she added her two sons’ names to the title of her house. The sons were in their 20s at that time. Through the years, one son prospered, and the other did not. When the woman was dying, and getting her affairs in order, she concluded that the prosperous son did not need the house, and attempted to remove his name from it. The prosperous son balked, and the matter was litigated. The court held that placing the sons’ names on the title to the property was a completed gift to each of them, and their names could be removed from the property only with their consent.
Moreover a joint tenant can sever the joint tenancy, with the consequence that his or her proportionate share of the property passes to his or her heirs, even if he or she predeceases the other joint tenant(s).
Property held in joint tenancy is immediately subject to claims of each joint tenant’s creditors. In yet another case, a man bought a house and rented it to his mother. Their names were on the title to the house as joint tenants. Later the woman attempted to quit claim her interest in the house to the son. It turned out that the woman had long-standing, substantial Federal tax liabilities of which the son was not aware when he allowed her name to be placed on the title to the house. In attempting to collect the woman’s tax liabilities, the IRS found the recorded quit claim deed (the IRS’ tenacity in identifying assets is not to be underestimated). The IRS asserted that the quit claim deed was avoidable as a fraudulent conveyance, and asserted a nominee lien in the house. The matter was litigated, and the U.S. District Court held, under developing Federal common law, that the mother owned a one-half interest in the house, and that the Federal tax lien against her attached to her interest in the house.
Joint tenancy can produce unintended results. In yet another case, a brother and sister each inherited several million dollars from their mother. Each of them established a joint bank account in joint tenancy with right of survivorship with the other, and deposited their inheritance into the account. The years went by. The brother and sister became estranged, and developed hostility toward one another. On his death bed, the brother executed a will bequeathing all of his property to his lady friend. But the bank account was not part of the brother’s estate. By reason of the survivorship provision, the bank account passed outside of probate to the sister by operation of law.
A revocable trust is much better than joint ownership for estate planning. The client “settlor” creates a revocable trust, and transfers his or her property to it (this is called “funding” the trust). During the client’s lifetime, he or she retains the right to use and enjoy the property, to revoke the trust, to transfer additional property to the trust, and to withdraw property from the trust. Upon the settlor’s death, the trust becomes irrevocable, and the property held by the trust at that time is administered according to the terms of the trust instrument. Because the settlor does not own the property at his or her death, there is no need for probate.
Drafting, execution, and funding of a revocable trust requires estate planning counsel. But doing otherwise is penny wise and pound foolish.