There are so many stories about family feuds, fights and lawsuits over inheritances. Some stories have happy endings and others are tragic. This is Installment #1 in a series about situations you can identify to know when the seeds of an inheritance lawsuit may be taking root in your family garden. Today we’re looking at what looms behind Joint Ownership.
Joint ownership seems like such a fair way to deal with inheritances... You just co-own with whomever you want to inherit! It can be done with different types of assets: real estate, bank accounts, investments, cars, collections, and more; it avoids probate; it may allow another person to share in or help manage the asset while you are living and you can stay involved as well; it lets you make ownership transfer convenient after your death, both for yourself and someone else. So, what could possibly be wrong with that?
Not all joint ownerships are created equal. For inheritance for joint ownership to work out simply, you have to be sure that you establish it with the tool that will create the outcome you want. So, a quick review of Joint Ownership in Oklahoma reveals three types:
● Tenants by Entirety is used only for married couples with regard to real property, so that both parties own the entire asset together. Great—unless they split. Still, if they stay married til death do they part, the survivor owns the entire property upon filing of an affidavit of surviving joint tenant. This type of ownership does avoid probate.
● Tenants In Common is used for real estate and most often the co-owners are not married to each other. Tenants in Common parcels the asset into percentages (examples: 50/50, 60/40, 35/20/45…). Each co-owner’s share must go through probate upon the co-owner’s death (unless the decedent’s share is owned by a trust). This is very inconvenient for the surviving co-owner who also does not inherit the other co-owner’s share(s) unless the will or trust bequeaths it to that survivor. In other words, this form of ownership does not grant rights to own the decedent’s share to the surviving co-owner(s).
● Joint Tenants With Rights Of Survivorship is used most often to avoid probate, so that when one owner dies the other(s) simply become the owners. This is used with real estate, bank accounts, cds, and other assets. No one has a percentage. Everyone owns the full asset, together, until all other owners have died. When one owner dies, if the asset is real estate, the remaining owner(s) file an affidavit of surviving joint tenant(s) with the Deeds office and become the full owners. If it is some other type of property, the surviving joint tenants either provide the institution with the death certificate of the decedent or otherwise take control of the property. The last remaining tenant gets the whole enchilada – 100%. I call this the “Last Person Standing” tool.
Those are the basics. A skilled estate attorney can help you define what you have or what you want to set up for your heirs. “So?” you are repeating. “What’s the problem?” Well, let’s go out into the garden and turn over a few rocks.
Creditor lawsuits. Tenancy by the entireties is an estate that can exist between husband and wife only where both spouses own and control the whole estate. Supposedly, Tenants by Entirety are safe from creditors unless both Tenants owe the same creditor. Increasingly, judges are not ruling in favor of people who try to avoid paying creditors by this method.
High divorce rates. Judges are also not excited about being forced to use up the court’s time and resources to hear lawsuits arising from real estate squabbles that range from misunderstood percentage amounts of ownership (should’ve used Tenants in Common), to who owes how much of the taxes, maintenance, upkeep, and so forth.
Unexpected Death. Many married couples inadvertently end up with this kind of ownership on their home even though it might have been understood that the home belonged to only one of them and was destined, for example, to go to a child from a prior marriage. With this Tenants by Entirety ownership, the surviving spouse owns the property at the death of the first spouse, period. This is so even if there is a will that directs otherwise. Many children from prior marriages are routinely disinherited by this type of ownership..
New Co-Owner. When you own your own percentage of an asset by Tenants In Common, you control the percentage you own. That means you can sell or transfer it to whomever you choose—without the agreement of your co-tenant(s). Your co-tenants have the same option. Many people accidentally put their kids on their home thinking that this avoids probate. It does not. Most often, the original co-owners do not understand that the whole property is no longer theirs. Also, any of your co-owners could lose his or her portion in a divorce or bankruptcy. So, you could find yourself co-owning property (doing business with) someone you did not choose, find disagreeable or do not trust -- like an ex-in-law!
Forced Sale. When you own your own percentage of an asset as Tenants In Common, your other co-owner could get into financial problems. Although your portion of the property would not be subject to the creditors of your co-owner, per se, a property lien or other debt can make the perceived value of your percentage less on the market. Worse, those same creditors could force the sale of the property to obtain the money your co-owner owes.
General Partnership Liability. Tenants in Common can be viewed as a sort of general partnership. Therefore, if your co-owner (partner) is sued for doing something to cause someone harm due to his actions, negligence or management of the asset, you as the co-owner (partner) could also be sued. That’s right. And isn’t that a whole new can of worms?
Probate Nonetheless. Although Joint Tenancy With Rights of Survivorship (Joint Tenancy) is often established to avoid probate, outright ownership must be addressed by the “last person standing” or it will land in probate court, regardless. When the last person owns it, the asset is no longer “joint” and as the property of a sole owner, it’s a probate asset. So, the last person must either sell it, transfer it (such as to a trust) or replace the missing co-owner(s).
Accidental Disinheritance. When there are proper joint tenants with rights of survivorship, many a parent is shocked to learn that assets under this type of Joint Tenancy are not controlled by their Wills or Trusts. If you die under a properly executed Joint Tenancy, the other joint tenant owns the entire asset, regardless of what your Will or other instruction says.
(This can play out in several scenarios: Say that your spouse dies and you are the last person, so now you own the entire asset. Eventually, you remarry and add your new spouse to the property. If the new spouse is not the parent of your children, you effectively disinherited the children of your first marriage from this asset. Now, forget the remarriage idea. What if you decide to become a joint owner with one of your adult children? Adding him or her to the Joint Tenancy disinherits your other children.
A shocker for many parents is that your Will or Trust may clearly state that you want someone in particular to receive your share of a jointly owned asset. Even so, when you die, the asset will assuredly go to the surviving co-owner. The surviving owner can then do whatever he or she wants with the entire asset. This is the root cause of many an estate lawsuit. With bank accounts held this way, your joint tenant who provided none of the funds in the account can simply take all the money at will -- even before you die.)
Title Transfer. It's pretty simple to add another co-owner to a title, but removing someone's name can be tough, especially if the person doesn’t want to be removed. This can require a hard-fought court order.
Co-owner Debts. What you own with another person is exposed to that other person’s debts and obligations. If your co-owner defaults on a loan, goes bankrupt or is successfully sued, you could lose control of or be forced to sell the asset.
Taxes. If not carefully planned, gifting a co-ownership or selling or transferring joint assets could cause severe tax consequences.
Medicaid Qualification. Even though, in your head, the co-owned property really belongs to you, this type of gift can interfere with your ability to qualify for governmental benefits like Medicaid.
Minors and Incapacitated Persons. A minor (someone under 18 years old) or mentally incapacitated adult might be a joint owner of real estate or personal property (i.e., appliances, vehicles, art, furniture, jewelry, bonds, retirement benefits, shares or stocks). You must have a court ordered guardianship of the person to ever transfer, sell or refinance such assets and this is so even if you are the parent of a minor child who is the co-owner.
BOLO! (Be On the LookOut) for LAWSUITS LOOMING IN JOINT OWNERSHIP
These and other potential lawsuits lurk in partnership and estate plans that are not set up to prevent them. They hide in do-it-yourself or out-of-date estate plans and under family and partner relationships that are not well-planned. Your experienced estate lawyer can help you be on the lookout for existing or pending problems and help you find ways to represent your best interests should you find yourself involved in estate litigation.
*Originally posted on LinkedIn, June 9, 2017 as one of Gale Allison’s Estate Matters Update articles.