By Samantha Reichle

As with any finely tuned machine, a well-maintained estate plan requires a thorough understanding of all its component parts to ensure that it functions efficiently. While the core documents that make up your estate plan might vary depending on the complexity of your wealth and legacy planning goals, even the most basic estate planning techniques require a periodic review of the current ownership and beneficiary designations for your assets. Depending on how your bank accounts, real estate, and other assets are titled (ie, who is listed as owner on your bank statements, deeds, and other title documents), you could unintentionally create a situation where certain assets are transferred contrary to the intentions outlined in your documents. No matter how well-drafted a will or trust provision might be, if your asset ownership and beneficiary designations are not carefully coordinated with your overall estate plan in mind, those meticulously drafted provisions could wind up having little to no effect on the distribution of your assets.

For many people, joint ownership is an effective strategy for dealing with certain assets where it makes sense for two or more people to have an interest and some level of control over the asset. As with any planning technique or tool, though, it’s crucial to have a thorough understanding of what joint ownership entails so that you can avoid potential pitfalls and make sure that it doesn’t disrupt your overall plan design.

Typically when one thinks of “joint ownership” of an asset, they’re referring to a “joint tenancy with right of survivorship.” With this form of joint property ownership, each joint owner has an equal right to access, use, control, and enjoyment of the property, which means they each have a right to manage and use the asset. When a joint owner dies, that owner’s interest in the property passes automatically to the surviving joint owner(s). In order for this automatic transfer of interest to occur, the ownership document must specifically include the phrase “right of survivorship” (or its abbreviation). In North Carolina and several other states, a similar form of ownership called “tenancy by the entireties” can be created when a married couple acquires property together. There are some key differences between traditional joint ownership and ownership as tenancy by the entireties, one of the chief ones being that tenancy by the entireties ownership provides some additional creditor protections for the property owned by the married couple. For the purposes of this article, we’ll be focusing primarily on joint ownership between unmarried individuals.

While there may be certain situations in which joint ownership of an asset makes sense, it’s important to keep certain issues in mind when considering whether to set up an account or acquire property with another party as a co-owner. In Part 1 of this two-part series, we’re focusing on two reasons joint ownership might not be the best strategy from a planning perspective:

  1. Unintentional disruption of your desired distribution plan. If you’ve got an estate plan in place, you’ve likely thought long and hard about how you want your assets to be distributed when you pass away. However, it’s critical to understand that your estate plan extends far beyond the four corners of your trust or will. In fact, without taking a thorough inventory of your assets and how they’re owned, it’s possible that your assets could pass in a manner completely contrary to your planning goals.

Take the following example: John is a widower with two children, Mary and Tom. Mary is a successful neurosurgeon with a flourishing practice and a good understanding of finances. Tom is a freelance artist and struggles with meeting deadlines. John loves both his children but wishes to leave Tom his entire estate when he passes away since he believes Mary will be well taken care of with her successful medical practice. Mary also regularly helps him to pay his bills since she is very organized and detail-oriented, so he’s set up a joint account with Mary so she can write checks and pay his monthly credit card bill. Several years after John executes a will leaving everything to Tom at his death, John sells his house and moves into an assisted living facility. He also consolidates all of his accounts into one money market account owned jointly with Mary, who has check-writing authority. When he passes away, the joint account (which is the sole asset John owned at his death) passes to Mary as joint tenant with right of survivorship, and Tom receives nothing under his father’s will despite his father’s intention that Tom receive the entire estate.

Property with a “right of survivorship” designation passes to the surviving joint owner regardless of what the deceased owner’s estate planning documents say, so it’s critical to keep this in mind whenever setting up a joint account that will pass by survivorship, especially if the joint owner is not the same person as your intended beneficiary, or if there are additional beneficiaries who you would want to share an interest in the asset.

  1. Lost planning opportunities. Even if you intend for the joint owner to receive the property, there are a number of ways in which transferring it by right of survivorship could miss out on planning opportunities. For instance, if the surviving owner fails to adequately address their own estate planning (or if their priorities differ from yours), an asset could wind up in the hands of a beneficiary you’d rather avoid receiving the property. If you’ve taken care to set up a Lifetime Protection Trust for your beneficiaries, you likely have included provisions that would ensure assets remain in your family bloodline, rather than passing to a beneficiary’s spouse (and potentially, that spouse’s new spouse in the future!). Any assets that a beneficiary receives by right of survivorship would not be included in the Lifetime Protection Trust and could potentially pass to others outside the family down the road, contrary to your intentions. Also, whereas assets left to your beneficiary in the Lifetime Protection Trust may enjoy certain creditor protections, those same protections are not available to assets that pass to the beneficiary by right of survivorship.

In Part 2, we’ll analyze some additional ways that joint ownership can complicate an estate plan, focusing more specifically on problems it can create for the beneficiaries who inherit the property. At Strauss Attorneys, we’re dedicated to making sure that every aspect of your plan is carefully considered so that your goals are met. Contact us today if you have any questions about how best to title your assets so that they’re properly coordinated with your estate planning documents. You can schedule an appointment at our Asheville office at 828-258-0994, or to make an appointment with our Hendersonville office call 828-696-1811. We now also have our newest location in Raleigh, North Carolina. To make an appointment with our Raleigh team, call 919-825-0932. You can find out more about us on our website at www.StraussLaw.com.

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