Can Joint Tenancy Take the Place of a Trust?

Comparison of a Living Trust to Joint Tenancy

The entire focus of living trusts, joint tenancy, and estate planning in general, is to avoid the trouble of the court process for probate. If a person dies without an estate plan, typically assets and property left behind will get tied up in a long and drawn-out court process which can become extremely expensive and last upwards of a year.

The key is to avoid the situation of getting tied up with probate and pass your assets along to your heirs and beneficiaries as quickly and efficiently as possible. One popular method people use to transfer assets in California is Joint Tenancy with Rights of Survivorship. The process is usually cheaper than paying for a comprehensive estate plan, but Joint Tenancy also has its downside.

Let’s take a closer look at the pitfalls of choosing Joint Tenancy over a living trust.

What is Joint Tenancy?

When an asset, let’s say a house, for example, is held in Joint Tenancy it is owned jointly by two or more people. The property, in turn, cannot be sold, transferred, gifted, or mortgaged without the approval of each joint tenant involved in the ownership. The assets, however, are not protected against the creditors or other debts of the joint tenants and can be subject to lawsuits.

Most people use a Joint Tenancy because the process seems easier and less costly than drafting a living trust, and the fact that the process avoids probate typically acts as a selling point. While Joint Tenancy does avoid probate, using a Living Trust to protect your assets is a far safer choice.

What Are the Disadvantages of Joint Tenancy?

Tax obligations: holding a home in Joint Tenancy could bring significant tax disadvantages when one of the tenants passes away.  If the property in question would be considered appreciated community property (if it weren’t in Joint Tenancy), it would receive a step-up in income tax basis on both halves of the property equal to the fair market value after the death of the first spouse. By contrast, in Joint Tenancy, only half of the property can be entitled to a step-up in income tax after the first spouse passes away.

Along with the tax implications, Joint Tenancy can become complicated during a divorce, as a person’s heirs will not have a claim to that property. Joint Tenancy can also become a problem if you get into an accident, try to sell or refinance the home, or have someone bring litigation against you.

Why Should I Choose a Living Trust Over Joint Tenancy?

There are multiple reasons why a Living Trust is a superior estate planning tool over Joint Tenancy. Drafting a trust eliminates probate and any risks of joint tenancy while also protecting your family after you pass away. A living trust helps a person specify where their assets will eventually go and protects against any litigation, in case they are being sued.

Once you are ready to start protecting your assets with a living trust and estate plan, contact our expert estate planning attorneys at (800) 403-6078 for a free consultation. We will walk you through the entire process and set up a specific estate plan to meet your family’s needs.  We look forward to working with you soon.

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