Newland's Business Notes

Joint Ownership Versus Estate Planning

Volume 6 Issue 6 -- November/December 2002

It is not uncommon to find individuals who have decided to approach estate planning by putting real estate, often a home, in joint ownership, usually with a husband and wife, and an adult child or children.  Is this a good idea? 

Let=s begin by exploring the four ways in which real property is generally held.

  1. Sole Ownership B one individual owns the real estate.
  2. Tenants in Common B two or more individuals own an undivided interest in property.  Example:  A and B each have a 50% interest as tenants in common.  Should one of the two die, her 50% undivided interest in the property would pass to her heirs as an asset of her estate.
  3. Joint Tenants with Rights of Survivorship B the survivor “takes all.”  Assume Siblings X, Y and Z own a property.  If X dies, then Y and Z own it all.  When Z dies, then Y has sole ownership.  The estates of X and Z (and their children) have no claim to the property because of the rights of survivorship.  In other words, the survivor, Y, takes all.
  4. Tenants by the Entireties B another special form of joint survivorship ownership, available only to husband and wife in Virginia (and some other states) that provides, among other things, special protection for marital assets from the claims of creditors of one spouse.

Does Joint Ownership Work?

The impetus for parents to jointly title property with a child or children is often to insure that the child will get the property when the parents die, and, in other cases, to avoid doing better estate planning.  The critical assumption is that the parents will die before the child or children.

Sometimes this sort of planning does not work because a child meets an untimely death.  In the “premature death of a younger generation” scenario, the older generation may be thwarted with no back-up planning specifying what other relatives should get the property when the second spouse dies.  In addition, third generation heirs (grandchildren) may receive nothing if their second generation parent dies before the older generation passes on.

Another problem with the jointly owned property approach can arise when the surviving spouse remarries. The younger generation may be ignored.  For example, if Ned and Zola own property as tenants by the entireties and Ned dies, then Zola gets the jointly held property.  If Zola is the second spouse of Ned and Ned had children from his first marriage, then the rights of survivorship may work as a disadvantage to those children.  Zola could give the property previously owned solely by Ned to the children of Zola=s first marriage, ignoring Ned=s children of his first marriage.  There have been a number of instances where titling property with the second spouse greatly disadvantages children of the earlier marriage.

Another problem with any form of joint ownership is the need to get the signatures of all the owners when the property is to be sold.  The relationships between children and parents may change over time, so when it is desired to sell the property, it may not be easy or even possible to get the consent and signature of another co-owner. 

Often children disagree with each other after the death of the second parent (see our newsletter, Don=t Assume Your Children Will “Get Along,” July/August 1998). 

Likewise, any change in the “plan,” even if everyone agrees, requires rewriting and re-recording deeds.  This can be needlessly difficult.

So, What Is the Alternative?

In my opinion, the alternative to joint ownership is to do estate planning or at least plan what you want to happen in the event various contingencies arise.  In some situations, joint ownership of realty may suffice.  For larger estates or situations where problems could arise, a well drafted Will and Trust can avoid the problems of joint ownership. 

The unintended consequences of joint ownership are often not fully understood.  If you have questions about joint ownership of property and estate planning, please contact Newland & Associates.

Copyright 2002

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

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