Why Joint Ownership May Not Be the Best Option for Newlyweds
If you're recently married, or have been for a while and are acquiring more assets like money or property (or planning to), you have choices about how to hold ownership. While joint ownership may seem like a simple and convenient choice, it doesn't always work as well as expected, depending on the situation.
What Is Joint Ownership?
Some couples choose to add each other to their existing bank accounts, brokerage accounts, and real estate (referred to as assets) as joint tenants with rights of survivorship (JTWROS) after marriage. This means the asset is jointly owned by at least two people, and each person has an equal right to the property or account. If one owner dies, the remaining owners automatically inherit the deceased person’s share without needing to go through probate, once a death certificate is presented. For example, if a couple owns a bank account as JTWROS and one spouse dies, the surviving spouse immediately becomes the sole owner of the account once the required documents are provided. While this may sound like a hassle-free way to own assets and avoid probate, there are potential downsides.
Challenges with Joint Ownership
Joint ownership can lead to issues, especially in unstable relationships, because neither person can sell, lease, gift, or encumber (which includes refinancing) the property without the other person’s agreement or, in some cases, legal intervention. Depending on state law, there may be additional problems with bank accounts, since both people typically have unrestricted access. Either person could drain the account without the other's consent.
Additionally, joint ownership isn't always a perfect solution to avoiding probate. After one spouse passes away, the surviving spouse gains sole control over the asset and can use or gift it however they want, potentially disregarding the wishes of the deceased spouse. This becomes especially problematic with inherited or separate property, such as a farm or family heirloom, which the deceased spouse may have wanted to pass on to their own descendants. The surviving spouse, however, has the power to redirect that asset to someone else.
In blended families, JTWROS can unintentionally disinherit children from a previous relationship. If all property is jointly owned, the surviving spouse will automatically receive everything, and the children of the deceased spouse won't have rights to jointly owned assets.
A well-thought-out estate plan using a trust to manage assets offers more control and protection for your belongings. With the right plan, you'll be able to enjoy your assets as you intend, while minimizing potential tax burdens and legal fees.
The Bottom Line
Given these challenges, it's crucial to work with an estate planning expert to explore the best options for managing your assets. If you've recently married or are acquiring more property with your spouse, reach out to us to discuss your options and ensure your wishes are protected.