The appeal of joint tenancy with right of survivorship is that when you die, the surviving joint tenant will automatically inherit the house or bank account, thus avoiding probate.
You figure that your kids are on title only so they will inherit easily when you die—but the law takes a different view.
Your joint tenant’s debts become your problem
If your joint owner files bankruptcy, gets sued, has a judgment against him, or gets divorced, then your assets become vulnerable to these claims. You may think joint tenancy is merely a tool to transfer assets when you die but the reality is your assets can be tied up in court—and confiscated to pay your joint tenant’s debts—while you are still alive.
Inadvertently disinheriting children and grandchildren
If the surviving joint tenant is your spouse, and the survivor re-marries, then your children could be disinherited. The new spouse often has rights to the survivor’s estate even if new spouse is not mentioned in your surviving spouse’s estate plan.
If your child is the surviving joint tenant, then the asset often goes to your in-law when your child dies instead of to your grandchildren.
Moreover, people often put one of their children on the bank accounts as a convenience. The “caretaker” child promises that he will share the wealth with the other kids when you die. You can see where this is going. (There is a new law in Illinois that attempts to deal with this. Look for a future post on “convenience” accounts).
In addition to all the above problems, joint tenancy may make it difficult to sell or refinance your home and you might trigger unnecessary capital gains and gift taxes.
The solution? Proper trust-centered estate planning.