Advantages and Disadvantages
The primary advantage of owning property in joint name with another person is that when you are gone, your property passes automatically to the surviving joint tenant. If you own property with one joint tenant, the surviving joint tenant will inherit 100 percent of the property upon your death. If you own property with more than one joint tenant, the property will pass in equal shares to the surviving joint tenants.
Owning property in joint name is a simple way to have title to your property pass when you are gone, but there can be unexpected consequences when you die. There are several reasons that you may not want to place all of your property in joint name with another person or persons.
When you place most types of property in joint name with another person, you have made an irrevocable decision. If you change your mind about owning your property with the person you added as a joint tenant, you can't get the property back without the permission of your new joint tenant.
Also, with most types of property, when you add a person as a joint tenant (other than a spouse), you have made a taxable gift to that person. You will need to read Chapter 17 to learn the rules about gift taxes.
When you add a person's name to your bank account, you usually are creating a joint tenancy. But, in the case of bank accounts, there is an exception to the rule that the joint tenancy is an irrevocable decision and a taxable gift to the other person. You need to ask your financial institution to outline the rights created when you add a name to your bank account. These rights can vary among financial institutions.
Beware! Any joint tenant can withdraw all of the funds from the account. Even though the decision to add a person's name to your bank account is not irrevocable, you might wake up one morning and find all of your money gone.
You have not made an irrevocable decision when you open a joint bank account because you are not treated as having made a gift until the person whose name you added withdraws money that he did not deposit.
Your Will Doesn't Affect Joint Property
This is probably one of the most misunderstood concepts in estate planning. Your will has absolutely no effect on joint property. As a matter of fact, your will could say, “I leave the funds in XYZ Bank in equal shares to my children,” but such a clause would be ignored if the bank account is in joint name. If you have four children but you have put one child's name on your bank account, the entire balance will belong to the child named on the account and will not pass in equal shares to all of your children. Remember, one reason you put your property in joint name was so that title would pass automatically to the joint tenant when you die.
Imagine the shock and disappointment of your children who are not joint tenants on your property. The other children will wonder whether you loved the child you included as a joint tenant more than you loved them. You may have put one child's name on an account as a matter of convenience. But after you are gone, your children have no way of knowing what you really intended.