The Perils of Joint Property
Setting up bank accounts or real estate in joint ownership with a family member can seem like a simple way to ensure that property transfers seamlessly upon death—avoiding probate. Joint tenancy is often easy to establish at the bank or title company, making it an appealing option.
However, joint ownership can lead to unintended consequences and complications. Before deciding if it’s the best way to pass on assets, it’s worth considering the potential pitfalls. Let’s explore some common problems that arise with joint property ownership.
The Other Owner’s Debts Become Your Problem
If the joint owner accrues debt, it could affect you. Bankruptcy, tax liens, or judgments against them may bring creditors into the picture. For instance, if you add your adult child to your home’s deed, their unpaid debts could put your property at risk. Even though “your” equity might not be seized, the home itself could be auctioned to settle their debts—a devastating outcome for a property you live in.
Your Property Could End Up in the Wrong Hands
Inheritance issues can become complicated with joint ownership. For example, if you own property jointly with an adult child and pass away, the property becomes theirs. But if they later marry or have other obligations, the property could end up shared with their spouse or even passed on to someone outside of your intended heirs.
Risk of Accidentally Disinheriting Family Members
Joint ownership overrides your will. For example, if you and your adult child co-own a business, and you plan to divide the business equally among all your children in your will, that plan will be ignored. The surviving co-owner automatically receives full ownership, regardless of your wishes.
Selling or Refinancing May Become Difficult
All joint owners must agree to sell or refinance jointly owned property. Disagreements can stall the process, potentially requiring a court case to force a sale—a costly and stressful ordeal, especially when family members are involved.
If a co-owner becomes incapacitated due to illness or injury, selling may require court-appointed guardianship or conservatorship to represent their interests. This appointed guardian may prioritize protecting the incapacitated person’s share, potentially conflicting with your plans.
Unnecessary Capital Gains Taxes
Selling a property often triggers capital gains taxes based on the increase in value from when it was purchased. Adding an adult child as a co-owner could leave them responsible for a large tax bill they can’t afford, especially for properties with decades of appreciation.
By contrast, heirs only pay capital gains taxes based on the property’s value at the time they inherit it—not when it was originally purchased. Inheriting property instead of co-owning it can save heirs substantial income tax. While estate taxes remain a concern for some, most people are exempt under the current $13.99 million estate tax threshold for 2025, which is due to sunset and fall back to $5 million at the end of the year if not extended by congress.
Gift Tax Implications for Unmarried Partners
Placing property in joint tenancy with an unmarried partner may trigger gift taxes, as the IRS often views this as a taxable gift. This creates unnecessary tax liabilities and paperwork for both parties.
What’s the Solution?
These decisions are too important and complex to navigate alone. Consulting an experienced estate planning attorney can help you:
- Reduce estate taxes.
- Avoid legal and tax pitfalls.
- Create trusts to protect your loved ones and ensure your wishes are honored.
At Gonzalez Law, we specialize in crafting personalized estate plans that address your unique needs and relationships. Our team will work with you to create a plan that provides peace of mind, safeguards your assets, and achieves your family’s long-term goals.
Contact us today for a consultation and take the first step toward protecting your legacy.