In Part 1 of this series on Transferring Your Estate, we went over the basics of what Estate Planning is and the importance of it. We also went into detail in regards to the first method of transferring your Estate, which is using a Will, and its importance in the overall Estate Planning process. We went over the different types of Wills as well as what happens when someone dies without a valid Will, also known as dying ‘intestate’. In this Part 2 of the series, we will discuss the second method of transferring your Estate, which is using Joint Ownership.
Having an asset registered as Joint Ownership is one of the easiest and cost efficient ways to have your asset move directly to your desired beneficiary. Many people decide to register assets as joint ownership, which makes the process of transferring assets on death fairly simple. There are 2 ways to register assets as Joint Ownership: Joint Tenants with Right of Survivorship and Tenancy In Common
With both of these types of registrations, there 2 or more people that own the asset. Also, one co-owner cannot exclude another co-owner from the right to possess or use the asset, and each co-owner has a right to dispose of their share of the asset during their lifetime. The main difference between the two actually arises upon the disposition of the property upon death of a co-owner. The secondary difference is that, with Joint Tenants with Right of Survivorship, all owners must have an equal share, whereas with Tenancy in Common, the share ownership of the asset does not have to be equal.
With the Joint Tenants with Right of Survivorship, the share of the deceased passes to the surviving owner(s)/tenant(s) in equal shares, and this happens automatically. What that means is the portion of the property the deceased owned does not form part of the Estate and therefore is not subject to the Probate process, thus reducing fees/taxes upon death. The main issue with using this method is that the individual does not have a choice of who the asset gets transferred to upon their death. This may be of concern if an individual wants someone other than another co-owner to inherit their share of the asset.
Property owned through Tenancy in Common gives the co-owner the ability to designate who will get their share of the property on death. This provides them with much more control in regards to the distribution of their assets upon death, which allows them to have a more thorough Estate Plan. On the flip side, however, their portion of the asset will pass through the Estate, and therefore will be subject to Probate. The main challenge with this method is that the surviving co-owners may not see ‘eye to eye’ on the use/disposition/changes of the asset or its use and there may be conflict upon the death of the co-owner. Careful planning should incorporate discussions and an understanding between the surviving co-owner(s) and the heirs of the deceased co-owner(s), so there is no potential future conflict in regards to the asset.
When considering the use of Joint Ownership as part of the Estate Planning process, it is important to note and understand the difference between the 2 structures, specifically the differences for disposition upon death. Not using the Joint Ownership structure effectively can lead to potential future conflicts and problems regarding both the asset itself, as well as the owners and heirs. Only by dealing with an Elite level Financial Advisor can this option be used in the most efficient and effective way.
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