If you recently married or have been married for a while and have acquired additional money or property (or plan to), you have options regarding how your assets can be owned. For newlyweds, joint ownership seems easy and convenient, it may not always work as well as you think it should, depending on the circumstances.
After getting married, some couples may add each other to their existing bank accounts, brokerage accounts, and real estate (collectively called assets) as joint tenants with rights of survivorship (JTWROS). An asset owned as JTWROS is owned by at least two people, with each person having an equal right to the account or property. When one owner dies, the remaining owners automatically receive the deceased owner’s share. Going to probate court is not required for this transfer; it happens after a death certificate has been furnished to the appropriate party or recorded. For example, suppose a married couple owns a bank account as JTWROS, and one spouse dies. In that case, the surviving spouse automatically becomes the sole owner of the account once the appropriate documentation has been provided. Although this scenario may seem like an easy solution to owning your assets and avoiding probate, there can be some pitfalls.
When two people jointly own an asset, problems can arise, especially when a relationship is unstable, because neither person can unilaterally sell, lease, gift, or encumber (which includes refinancing a loan, among other things) the property without the other person’s consent or, possibly, without judicial intervention. Depending on state law, there may also be additional concerns when dealing with bank accounts; since both people usually have unrestricted access to the account, either person could potentially go to the bank and drain the account without the other’s consent.
There are also issues with attempting to use JTWROS to avoid probate. When one spouse passes, the surviving spouse assumes sole control over the asset and can use or gift the asset during their life or gift it upon their death in any way they desire and may choose not to follow the deceased spouse’s wishes. This result is perilous when it comes to inherited or separate (nonmarital) property, such as a farm or ranch, passed down through generations in the deceased’s spouse’s family. The deceased spouse may want the asset gifted to their descendants after the survivor passes away, but the survivor can and may redirect the asset to someone else.
In a blended family, JTWROS may lead to the unintended consequence of a client disinheriting their children from a prior relationship. Suppose everything is owned jointly by the couple. In that case, when the first spouse dies, their children from a prior relationship will have no right to the jointly owned accounts and property because ownership automatically goes to the surviving spouse under the survivorship rights.
A comprehensive estate plan that uses a trust to hold your assets can better control and protect such items. The correct estate plan will ensure that you and your spouse can enjoy your assets as intended while minimizing potential taxes and court costs, whether due to creditor issues, incapacity, or death.
For all these reasons, consulting with an estate planning professional is essential to understand your options regarding the best approach to owning your assets. If you are recently married or are acquiring additional assets with your spouse, Book a free Discovery Call to learn about your options.
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