Avoiding Probate – Use Caution – Joint Tenancy

Stephen Howard — Stone River Law

Real People. Real Solutions.

Avoiding Probate – Use Caution – Joint Tenancy

Can I use a joint tenancy to avoid probate in Utah?

Short Answer: Maybe, but there are better methods of avoiding probate. To identify the best way of avoiding probate for your specific circumstances, consultation with an estate planning attorney is strongly advised

“Joint tenancy” describes a manner of holding title to (owning) real property such as a house or land in which multiple owners share ownership during their lifetimes, with the last surviving owner taking full ownership of the property when the other owner(s) have died.

Transfer of title to the surviving owner does not require probate, but transfer following the death of the final owner can require probate. This method of ownership is normally best used only by a married couple. There are generally better and safer methods of avoiding probate.

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Benefits of a Joint Tenancy

A joint tenancy (sometimes referred to as “joint tenancy with rights of survivorship”) is the most commonly way that a married couple will hold title to real estate. A key benefit of a joint tenancy is that can allow a surviving spouse to transfer title to the real estate without having to file a probate action with the court when the first spouse dies.

In other methods of holding title to real estate, transferring title following an owner’s death will require that the court appoint a personal representative (sometimes called an “executor”) and issue formal letters testamentary or letters of administration. The personal representative must then sign any deeds transferring title to the property, in his/her capacity as a personal representative, and attach a certified copy of the letters testamentary or letters of administration from the court. This provides the required proof that the person signing the deed has the authority to act on behalf of the decedent’s estate.

At its best, the probate process is time-consuming and costly. At its worst, it can become a long drawn-out court battle that pits family members against each other and drains resources from the decedent’s estate that would have been much better used in other ways.

Using a joint tenancy can be a good way for a married couple to avoid probate. But the joint tenancy only avoids probate for the first joint tenant to die. Upon the death of the second joint tenant, probate will still be required in order to transfer or sell the property.

Risks of Using a Joint Tenancy

Using a joint tenancy to avoid probate is an idea that has gained popularity in some circles. A parent who holds title to a home in joint tenancy with one of their adult children will in fact enable that child to take ownership, sell, or otherwise transfer title to the home without going through probate following the parent’s death. But the risks involved in using a joint tenancy can far outweigh any benefit derived merely from avoiding probate.

Once a property is held in a joint tenancy, either of the joint tenants can “encumber” the property. This means either other joint tenant can obtain a mortgage on the property or use the property as collateral on a loan. This means that creditors of either joint tenant may be able to obtain a lien against the property to secure repayment of moneys owed. This means that if either joint tenant becomes involved in a lawsuit, the property may end up being sold to satisfy a judgment. A joint tenant’s interest in the property could also be lost through a divorce or bankruptcy.

One reason that a joint tenancy can work so well for a married couple is that most married couples are working toward common financial goals, they pool their financial resources, and they share each other’s debts and obligations, So both spouses will normally have the same interests and concerns relating to the property. The same cannot usually be said of other joint tenants. Using a joint tenancy simply for the purpose of trying to avoid probate unnecessarily puts that property at risk.

Gift taxes may also potentially be triggered when real estate is transferred into a joint tenancy. If the property is originally owned by a single individual but is then transferred to a joint tenancy, that transfer may be considered for tax purposes to be a gift. Gifts between husband and wife are normally not taxable. But gifts to non-spouses can count against the lifetime combined estate and gift tax exemption.

A Better Way to Avoid Probate

A joint tenancy can be a risky way to avoid probate. But there is a better way. For many people, a trust can be used to avoid probate without creating the same risks that a joint tenancy will create.

Trusts are not just used by the “wealthy” in the estate planning process. While there are various types of complex trusts that are sometimes used by individuals with high net worth, a living trust is a flexible tool that can be tailored to fit the needs of many different family circumstances. A revocable living trust can allow a person to maintain control over their assets during their life as well as provide direction for their use following death. And when real estate is held under a living trust, any transfers or sales of that real estate can normally be done without the need of filing a probate action with the courts.

Probate can require court fees, attorney fees, and long waiting periods before a personal representative can be appointed. By contrast, a successor trustee can begin acting on behalf of the trust estate usually just by signing a relatively simple affidavit.

Finding an Estate Planning Attorney in Salt Lake City

The estate planning process can be overwhelming. But we work with our clients to ensure that they understand the various options available to them, and then take the time needed to understand their circumstances and needs before recommending an estate planning solution. Contact us today to see how a Salt Lake estate planning attorney can help you.