“It's a common practice for couples and business partners to take title to each other's bank accounts, brokerage accounts, real estate and/or personal property as joint tenants with rights of survivorship (JTWROS).”

JTWROS, or Joint Tenants with Rights of Survivorship, is a form of asset ownership, whereby an asset is owned by at least two people, all owners have an equal right to the account's assets and are afforded survivorship rights, if one account holder dies. In other words, if one partner or spouse dies, the other receives all the money or property. This is why many married couples and business partners go with this option.  However, there are some things you should think about before entering joint tenancy.

Investopedia’s recent article, “The Benefits And Pitfalls Of Joint Tenancy,” examines the advantages and disadvantages of this arrangement.

ADVANTAGES

Avoiding Probate. When an individual dies his or her will is reviewed by a probate court. The court decides if the will is valid and legally binding and determines what liabilities and assets the deceased may have left. Any remaining assets after all debts are settled, are then distributed to heirs. If the individual dies without a will, the laws of intestacy apply. The probate process can take weeks, months, or even years, to sort through the deceased's estate. It will take even longer for beneficiaries to receive their inheritance.  However, with JTWROS, ownership automatically transfers to the other spouse or business partner upon the death of the first partner. There’s no probate.

Equal Responsibility. When a married couple or two business partners own an asset that is titled JTRWOS, both individuals are responsible for that asset. They both enjoy its benefits and share in the liabilities equally. It also means that neither party can incur a debt on the asset, without indebting themselves.

Continuity. When someone dies, his or her assets are often frozen, until the probate court determines whether the assets are encumbered, or until a determination is made about how to distribute them to heirs. This can be a problem for a surviving spouse who has outstanding debt or expenses.  However, by owning an asset as a joint tenant, the surviving spouse or business partner may use the property in any way he or she sees fit. The law also states that immediately upon the death of one tenant, ownership is transferred to the survivor.

DISADVANTAGES

Deteriorating Relations. Two people who own the entire asset together can be a disadvantage in an unstable relationship. Neither party can sell or encumber the asset, without the other party's consent.

Frozen Bank Accounts. If the deceased is heavily in debt, and the probate court is concerned that the surviving spouse or business partner may liquidate the funds to avoid paying the obligations, the court could freeze the account. An account may also be frozen, if there is a question as to whether the surviving spouse or business partner actually contributed to the account, or if the ownership was merely for convenience. In some cases, the asset may still be frozen upon the death of either partner or spouse.

Partner Asset Control. When the surviving spouse or business partner assumes control over the joint asset upon the death of the co-tenant, he or she may then sell it, or bequeath it to someone else: the deceased loses control over the ultimate disposition of the asset entirely.

Another Option. The alternative to joint tenancy is tenancy in common. Some of the benefits to this account are that the asset is divvied up, and each owner may own one half of the asset (or a percentage or fractional ownership can be created). Each party can also legally sell his or her share, without the other party's approval or consent. In addition, the asset will pass to heirs. Unlike with JTWROS, ownership of the asset will not automatically transfer to the surviving account owner upon the first owner's death. The asset will instead pass, according to provisions made in the deceased's will. The assets can also be accessed. If one owner becomes disabled or dies, the other owner should still be able to access his or her portion of the assets. Consequently, he or she can sell a portion of the asset or dispose of it, without needing to wait on a judgment from a probate court.

Reference: Investopedia (March 20, 2018) “The Benefits And Pitfalls Of Joint Tenancy”

 

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