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Moving Assets To Joint Ownership Is Not An Estate Plan

Posted by Joel Beck | Mar 13, 2024 | 0 Comments

At Peach State Wills & Trusts, clients often believe that moving their assets into joint ownership is a straightforward and effective estate planning strategy. While this approach might seem appealing due to its simplicity, it's important to understand that you almost certainly need a more comprehensive estate plan, and you must also be aware of the risks and possible negative treatments that joint ownership presents. Let's delve into why relying solely on joint ownership can lead to unforeseen complications and why a thorough estate plan is crucial for residents in Georgia.


Understanding Joint Ownership

Joint ownership (also known as joint tenants with right of survivorship) refers to adding another person, typically a spouse or child, as a co-owner of your assets. This can include bank accounts, investment accounts, real estate, and other valuable properties. At first glance, joint ownership appears to offer a smooth transition of assets upon one's death, bypassing the probate process. However, this method carries significant risks and limitations. In particular, joint ownership results in the following:

  • Immediate Transfer of Ownership: Upon the death of one owner, the surviving owner automatically becomes the sole owner of the asset. While this can expedite the transfer process, it might not always reflect the deceased's wishes for asset distribution among other family members or beneficiaries. In other words, if your intent is for one child (who you have made the joint owner with you) to share the assets with your other children, there is no legal obligation to do so. And, even if the child intends to follow your wishes to share with his or her siblings, there may be negative tax consequences to that child due to gift tax laws if gifts are made exceeding the gift tax exemption.  

  • Exposure to Creditors and Legal Judgments: Jointly owned assets are vulnerable to the debts and legal judgments against either owner. This means that an owner's personal financial troubles can jeopardize the entire asset. Accordingly, if your child has creditor problems or has a lawsuit judgment against them, your assets may be taken to satisfy those problems. 

  • Potential for Disputes: Adding a joint owner can lead to family disputes, especially if not all potential heirs are included as joint owners. This can result in conflicts and divisions within the family that could have been avoided with a more comprehensive estate plan.

  • Possible Capital Gains Tax Increase: For assets that may be subject to capital gains tax such as real estate or investments, when you add a child as a joint owner, the joint owner's cost basis becomes your actual cost basis in the asset. Then, after your death when the joint owner (now the only owner) seeks to sell the asset, he or she may have a substantially higher tax bill due to capital gains taxes. If, on the other hand, the child simply inherited the asset at your death, under current law he or she would receive a step-up in basis for capital gains purposes, which may result in no capital gains tax, or a lower tax bill, when the asset is later sold. 

The Limitations of Joint Ownership in Estate Planning

While joint ownership might seem to offer simplicity, it falls short of addressing the complexities and specific needs of a well-rounded estate plan.

  • Lack of Flexibility: Joint ownership does not allow for specific bequests or conditions on asset distribution. It's an all-or-nothing approach that might not align with your nuanced wishes for how your assets should be shared or used.

  • No Provision for Incapacity: Joint ownership does nothing to address what happens if you become incapacitated. Without a durable power of attorney or a living trust, there's no legal framework to manage those assets in accordance with your wishes if you're unable to do so yourself.

  • Does Not Avoid Probate Entirely: While it's true that jointly owned assets can bypass probate, this only applies to the assets held in joint ownership. Other assets not titled in this manner will still go through probate, potentially leading to a fragmented and inefficient estate administration process.

  • No Tax Planning/Creditor Risks: As noted above, adding someone as a joint owner may result in negative tax consequences to your joint owner, and, your assets may be subject to the claims of your joint owner's creditors.

Creating a Comprehensive Estate Plan in Georgia

A comprehensive estate plan goes beyond simply avoiding probate. It considers your wishes, family dynamics, tax implications, and potential future needs, including incapacity.

  • Incorporate a Will or Trust: A will or trust can specify how your assets should be distributed, allowing you to make individual bequests and include conditions or protections for your beneficiaries.

  • Consider Powers of Attorney and Health Care Directives: These documents are vital for managing your affairs and making health care decisions if you cannot do so yourself, covering areas where joint ownership has no effect.

  • Plan for the Future: A thorough estate plan can also include provisions for guardianship of minor children, charitable giving, and tax planning, ensuring that all aspects of your legacy are addressed.

Peach State Wills & Trusts: Here to Help with Your Estate Planning Needs

At Peach State Wills & Trusts, we're dedicated to helping Georgians create estate plans that reflect their wishes and protect their legacy. Moving assets to joint ownership is not a one-size-fits-all solution and may not be the best strategy for your situation. By understanding the limitations and risks associated with joint ownership, you can make informed decisions about how to plan for the future of your estate effectively.

Contact Peach State Wills & Trusts at 678-344-5342 or online to learn how to plan for your estate in Georgia today. Whether you're starting from scratch or need to update an existing plan, we're here to provide guidance and support. If you have any questions about estate planning in Georgia, don't hesitate to download our free guide here, no strings attached. We offer friendly, approachable, and professional advice to ensure your estate planning needs are met with the care and attention they deserve.

About the Author

Joel Beck

Joel Beck founded The Beck Law Firm, LLC in 2007. His firm focused on business law and estate planning needs of clients, two areas that he was drawn to based upon personal and business experiences in his life, including a ten-year career at NASD (now known as FINRA).


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