Joint tenancy is considered by many people as a valid reason for NOT having a Will or a Trust. The reasoning being that if everything is held jointly with full right of survivorship that will avoid probate and there is no need for a Will, a Trust or any Estate Planning.
Well, yes, no, maybe, not exactly.
1) Joint ownership with full right of survivorship does, in fact, avoid probate.
However, if the joint owners die at the same time, such as a car crash, the estate of the joint owner determined to have died last would be probated. If neither had a valid Will or Trust the state of Florida probates the assets according to state law, not according to the desires of the deceased.
Elderly married couple's adult children often get caught in the "Probate Court System" because Mom or Dad failed to realize when their spouse died they no longer owned their assets as Joint Owners. Now they own the asset as an Individual Sole Owner and that form of ownership always triggers Probate Court at death.
2) Joint ownership with adult children is potentially the most costly and at risk dangerous way to title any of your assets!
Example, a) You put your only child’s name on the deed of your home with your name as joint tenants with full right of survivorship.
Yes, this will avoid probate court but at the "cost" of the loss of the step-up in basis.
Meaning, for example, if you paid $200,000 for your home and it’s worth $400,000 at your death your adult child loses the full step-up in basis that a Will or Trust would have provided.
Their basis in the home would be imputed at $200,000. Yes they would get the "step-up" on 1/2 of the equity growth, namely the $100,000 of your half of the equity. However, your adult child would have to claim their $100,000 half of the equity growth as a capital gain at the time of sale. With a 15% capital gains tax rate your adult child now pays $15,000 in additional federal income taxes! A very costly mistake!
Example, b) You sold your home up North and are renting a condo on the beach in Florida living off social security, a pension and interest earnings from the $400,000 sale of your home that you put in a money market account with your adult child as joint tenants with full right of survivorship to avoid probate.
Yes, this will avoid probate court and life is good right up until the time your adult child joint owner files for bankruptcy, goes though a bitter divorce, is involved in an at fault automobile accident, has any kind of judgment or lien against them.
Case law is already established in these types of circumstances and you WILL lose ½ of the asset. In this example, $200,000 dollars! An extremely costly mistake!
The above are examples are why joint tenancy is considered the poor man’s Will, but more than likely it will become the poor man’s trap.
The cost of the above joint ownership, “Estate Planning Techniques” range from $15,000 to $200,000 dollars. The above examples well exceed what anyone would have to pay for the most sophisticated of Estate Plans!
Typical fees to set up an uncomplicated Trust range from about $800 to $1,500.