The Perils of Joint Property: What You Need to Know
Joint property ownership, such as adding a spouse or family member to a bank account or real estate title, often seems like a convenient solution for succession planning. With survivorship rights, the surviving owner automatically inherits the property without going through probate, and setting it up is usually straightforward. However, this approach can lead to unforeseen complications. Here’s what you should consider before designating someone as a joint owner:
Shared Debts and Obligations
One significant risk of joint property ownership is that the debts or legal issues of the other joint owner could become your responsibility. For instance, if your co-owner faces bankruptcy or tax liens, their creditors might claim your shared property. In Nevada, this could mean that your home or assets could be jeopardized due to your co-owner’s financial troubles, even if you’re not directly involved.
Unintended Inheritance Outcomes
Joint ownership can also result in unintended inheritance scenarios, particularly in blended families. If you and your spouse own property jointly and one of you passes, the surviving spouse will inherit the property. However, if the surviving spouse remarries, your property might end up shared with their new spouse or even the children from that new marriage. This can complicate inheritance plans, especially if you have children from a previous relationship.
Potential Disinheritance
When you designate someone as a joint owner, you forfeit control over how your property is distributed after your death. For example, if you co-own a business with your child and pass away, your will’s provisions might be overridden by the joint ownership, giving your child full control over the business and potentially disinheriting other beneficiaries.
Challenges with Selling or Refinancing
Joint ownership can also complicate the process of selling or refinancing property. All joint owners must agree to any transaction, which can stall sales or refinancing efforts if disagreements arise. In Nevada, if a joint owner is unable to manage their affairs and lacks a durable power of attorney, you might need to go to court to appoint a guardian, which can be costly and contentious.
Capital Gains Tax Implications
Selling property with joint ownership can lead to unexpected capital gains taxes. If you add an adult child as a joint owner and the property appreciates significantly, you both could face a hefty tax bill. Beneficiaries who inherit property, on the other hand, only pay taxes based on the value at the time of inheritance, which can be a significant tax advantage.
Gift Tax Concerns
Adding an unmarried partner as a joint owner might trigger gift taxes, as the IRS considers this transfer a taxable gift. Depending on the property’s value, this can result in additional paperwork and potential tax liabilities.
So What Should You Do?
Given these complexities, it’s crucial to seek professional guidance to navigate the pitfalls of joint property ownership. A knowledgeable estate planning attorney can help you understand the implications and craft a plan that meets your needs and goals while protecting your assets and loved ones.
Williams Starbuck Attorneys at Law is here to help you address the challenges of joint property ownership and develop a comprehensive estate plan. Contact us today for a consultation and ensure your estate plan reflects your intentions and protects your family.