Using Joint Tenancy as an Estate Planning Technique – Some of the Hazards

Many consider holding property as joint tenants with right of survivorship to be a good substitute for a Colorado estate plan that also avoids Colorado probate.  It is true that it can avoid probate in Colorado, but there can be some severe and adverse consequences if not thought out properly.

Wrong Recipient: Mom, who is a surviving spouse, has a bank account and names two children as joint tenants as an estate planning and probate avoidance technique.  Both of Mom’s children have children.  Unfortunately, Child #1 predeceases Mom, who at the time fails to add her grandchild from her predeceased Child as a joint tenant.  When Mom passes away, she effectively disinherits grandchild, which was not her intent at all.

Missed Medicaid Planning Opportunity: To simply avoid probate, H and W, have $400,000 held with survivorship in a bank account and anticipate that upon the death of the first, the survivor will have instant access to the funds in the bank account.  Unfortunately, the spouses are involved in an automobile accident and W is killed.  H was seriously injured and would qualify for Medicaid except for the fact that H received the entire $400,000 which must be spent down to around $2,000 before H is eligible for Medicaid.  Had the $400,000 been property planned for, half of it or more, depending on the ownership, could have been held in trust for H to make his life more pleasant and Medicaid would have covered the basic medical needs.

One Joint Tenant’s Liability: A and B are siblings and Mom names siblings as joint tenants on parcel of real property that she gives to A and B.  At the time, both A and B were on sound financial footing.

Several years later, B finances turn horribly south and he has to file bankruptcy.  The Banruptcy Trustee has tremendous power and takes B’s interest in the home to help satisfy some of B’s debts.  Had the mother utilized a property drafted Trust to “own” the property rather than named both children as tenants with the right of survivorship, B would not have owned the property in his name and the Bankruptcy Trustee would not have been able to take B’s interest in the property.

Moral: Before naming an individual as a joint tenant, be sure you understand the potential ramifications of this do-it-yourself estate planning technique.  It can work under some scenarios, but generally there is a better and safer way to plan for the transfer of one’s assets without incurring the cost and time of a Colorado probate proceeding.

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