Is Joint Tenancy for You?

Joint tenancy has its advantages. It's inexpensive to create, for example. In some jurisdictions, if one of the tenants dies, jointly held property might defeat the claims of creditors, or at least make their lives a great deal more difficult.

Should you put property in joint tenancy as part of your estate planning? The answer will vary depending on your circumstances. The current floor for federal estate  taxes ($2,000,000 during 2008; $3,500,000 during 2009) is high enough that tax considerations won’t play a part for most people. That eliminates one source of problems for most of us, though it’s worth remembering that creation of a joint tenancy could result in a taxable gift. However, many estate planners urge caution, even for small estates where taxes aren't an issue.

Tenancy by the Entirety

Some states recognize a special kind of joint tenancy called a tenancy by the entirety. Such a relationship can protect a married couple’s assets from the claims of at least some of the creditors of only one of the spouses (tax claims, however, may take precedence). Such a tenancy can keep either spouse from being disinherited by the other. Check with your lawyer to see whether your state permits this arrangement and whether it's a good idea for your situation.

Joint Bank Accounts

Particularly in old age, people often create joint bank accounts with their spouses, one or more children, or friends. The idea is that when one of the co-owners dies, joint ownership will give the other ones instant access to the account to help pay bills. However, joint bank accounts are a non-probate contractual arrangement that is similar to joint tenancy, but has important differences under the laws of many (if not most) states. For example, under the laws of many states, the joint account may belong to the party who deposited the funds, and ownership of the account may not be transferred to the surviving party until the death of the depositor. In these states an account is more like a payable on death account than a joint tenancy. (See chapter 3.)