Spring 2017 3

Don’t Hold Property Jointly with Children

by A. Scott White, CFP®, ChFC, CLU
President, Scott White Advisors

Thinking of holding property jointly with your children, in order to avoid probate?

Think again.

Although it may sound like a good idea, in reality it can be a recipe for disaster.

Property owned in joint tenancy automatically passes, without probate, to the surviving owner(s) when one owner dies. Besides the gift tax issues that may arise, it is usually a poor liability planning choice when a child or children are given joint tenancy to your property.

In essence, you’re giving away property if you make someone else a joint tenant of property that you now own yourself. The new owner could sell or mortgage his or her share, lose it to creditors, or lose it in a divorce. An Arizona woman, for example, added her adult son as an owner of her condominium as a joint tenant. The mother paid all expenses of the property and received all the income from renting it to tenants. Later, the IRS sued the son for unpaid income taxes, and eventually the condo was sold to pay the taxes. The mother received half of the proceeds. She sued for the other half, arguing that she was the only true owner because the joint tenancy had been created only for estate planning purposes. She lost. (Nikirk v. U.S., 2003 WL 22474742 (D. Ariz. 2003).)

I heard about a woman who passed away leaving her property to her children via a will. The daughter-in-law of the decedent, who is the mother of the children, discovered the value of the property during probate proceedings and filed several objections in probate court and delayed the estate settlement for years. Now the same woman who caused her mother-in-law’s probate delay is advising her own mother to hold assets jointly with each child expected to inherit the asset, so the property can avoid probate, bypassing public disclosure of the property’s value. But this is not needed, because in this case her mother has a revocable living trust that accomplishes the privacy goals by avoiding probate and is much better at liability protection. Depending on the type of joint ownership, for instance tenancy in common, it may not even avoid probate.

A revocable living trust is a trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries. This legal document accomplishes the goal of avoiding probate—without giving up ownership while the grantor is alive. It also requires no disclosure of estate assets.

If you want to avoid probate, you might find after discussing the matter with your estate planning attorney that utilizing a revocable living trust is a much better approach.

The information contained in this report does not purport to be a complete description of the securities markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing materials are accurate and complete. Any opinions are those of Scott White Advisors and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date subject to change without notice. Past performance may not be indicative of future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Strategies discussed may not be suitable for all investors. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. Diversification does not ensure a profit or guarantee against a loss.

Individual investor’s results will vary. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.