There may be a certain appeal to establishing joint ownership in property, primarily because it allows the other person to automatically inherit that property without the need for probate. For that reason, seniors often create bank accounts naming spouses or family members as joint owners, or add a relatives name to real estate. But there are a few reasons why this may not be the best option. Our elder law attorneys warn against using this technique as part of your estate planning.
Transferring property by operation of law
Pursuant to California statute, there is a set of laws referred to as the California Multi-Party Account Laws. These regulations determine who owns the funds that remain in a bank account after the bank account holder has died. Under these rules, the decedent’s share of the funds will pass according to the terms of the contract the account holder has with the bank. They could also pass by operation of law to certain survivors. All that is required is presenting the death certificate to the bank and a new account will be opened in the name of the survivor. As such, probate is not required. If you want to avoid probate, let our elder law attorneys give you some better options.
Transferring property by right of survivorship
If two people hold title to a piece of property in “joint tenancy,” that means they have designated themselves as have full ownership of that property upon the death of the other. This is also referred to as the “right of survivorship.” Spouses in California can hold property as community property with right of survivorship, as well. However, unlike joint tenancy, community property that does not specifically designate it as “right of survivorship,” will not pass through survivorship. Instead, the distribution of the property is controlled by the decedent’s will. The right of survivorship applies to both real and personal property, but it does not apply to bank accounts, which are governed instead by the California Multi-Party Account Laws. Our elder law attorneys are familiar with these laws and can give you proper advice.
Transfer of property by designation of beneficiary
California also has a statute called the Nonprobate Transfer Rules. This set of rules governs transfers of property by beneficiary designation. The most common types of beneficiary designation transfers we are all familiar with and those are life insurance policies and retirement accounts. Upon the death of the insured or the employee, the money held in these types of accounts will be distributed to the person designated as the beneficiary. The Nonprobate Transfer Rules also apply to Transfer on Death (TOD) and Pay on Death (POD) securities.
Your joint owner’s debts can affect your property rights
Despite being an easy and inexpensive alternative to probate, the jointly owned property can bring with it some downsides that you should consider. First, your co-owner’s debts become your responsibility. That means, if the joint-owners files bankruptcy, has a legal judgment entered against them, incurs a tax lien or any other legal claim, those creditors will likely have a legal interest or claim against your property. For instance, when seniors put their adult child’s name on the deed to their home, and that adult child has an unpaid debt, the home could be seized to collect on that debt.
Your property may end up belonging to someone you didn’t intend
Blended families can involve some very challenging estate planning issues. Consider how most married couples who own joint property know that their spouse will inherit the property when they die. However, if your spouse remarries and has children with a new spouse, then your home, for example, could end up with the new spouse or with their children, not yours. However, with a proper estate plan, you can address these issues.
You might unintentionally disinherit certain relatives
Once you have designated someone as a joint owner of your property, you no longer have control over what that person does with the property after your death. They become sole owners. This is true regardless of any provisions you may include in your will regarding that property. So, for example, if you own a business with one of your children, but state in your will that the business should be shared equally with all of your children, that will not matter after your death. Only the child who is a legal joint owner of the business will inherit it after your death.
If you have questions regarding joint property or any other estate planning issues, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!