Many of our estate planning clients often state: “I have a very simple estate. Why shouldn't I just make everything joint with my child (or children) now, thus avoiding probate and possibly reducing taxes?” In certain situations we believe the creation of joint tenancies is a good planning device. However, as you will see from the following examples, jointly-held property is not always such a good idea. Please consider these potential problems carefully. We will be happy to help you decide on an estate plan which may or may not involve the use of joint tenancies.

A. Jointly-held property with full rights of survivorship escapes Michigan inheritance taxation and probate administration. As a result, some clients make joint ownership their only estate planning tool.

B. Some problems with joint ownership (during life):

1. Some property (such as bank accounts) can be completely taken by either owner;

2. Some property (such as real estate) requires the consent of all owners to sell, transfer, refinance, etc.

3. Both joint owners can be liable for accidents because owners are responsible for their property.

4. The creditors of a joint owner may seize all or part of the assets.

5. If a joint owner gets a divorce, the value of the asset usually affects the property settlement and the asset itself could be part of the settlement.

6. One-half (½) of the asset may be treated as a gift when joint tenancy is created. A gift tax return or liability does not keep it out of the estate for Federal estate tax purposes.

C. Some problems with joint tenancy (after death):

1. Unexpected death order can:

a. Grandchildren can be unintentionally disinherited;

b. The asset may still be subject to probate.

2. Assets can change value and result in unequal or unexpected differences among children;

3. If all the assets are left to one child with an “understanding” on how the property will be divided among children, etc., the understanding may not be followed;

4. Other goals may not be achieved:

a. Educational funding, etc;

b. Professional or other centralized management, i.e., for minors.

D. Estate Tax effects:

1. Federal estate tax presumes that the true owner is the first to die, therefore the asset is taxed to the estate of the first to die. This can be a serious problem in an unexpected death order.

2. Basis of property (cost for tax purposes) is based on the value on the date of death. If property is transferred during life, it may lose the higher basis, which can result in higher capital gains tax.

As you can see from the above examples, it is not as easy as you may think and every estate plan is unique. While joint property can be one useful tool, it should not be the only one. We look forward to reviewing your individual plan in detail and recommending a customized plan for you.