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JOINT TENANCY (not always the preferred vesting)

 

Estate Taxes   For large estates, a sizable tax exemption may be wasted when property is vested as joint tenants.  Under current law each spouse is entitled to a $600,000* exemption from estate taxes.  But if one spouse dies, the property goes directly to the surviving spouse and the exemption is lost.  When the surviving spouse dies, $600,000* can be passed on to the heirs but anything over that amount is taxed.

 

Note:    Property jointly vested with an heir will transfer upon death to the heir without any “step up in basis”.  Remarriage property that is jointly titled in a second marriage means the property goes to the surviving spouse and perhaps ultimately to the children of the surviving spouse’s first marriage.  The children of the deceased spouse may be left out of the inheritance loop completely unless specific arrangements are in place.

 

* under the new tax law this exemption will gradually increase until the year 2006 at which time it becomes $1,000,000.

 

Incapacity       Should one spouse become incapacitated, the other spouse cannot sell, borrow against or gift jointly owned property without permission from the courts unless the couple had the foresight to prepare powers of attorney in advance.

 

Liability          Jointly owned property is open to creditors of either spouse.  Income and assets contributed by one spouse to their joint account could be confiscated in the event of a liability judgment or personal or business debts owed by the other spouse.

 

Unrelated       When two or more unrelated individuals own property together, the most commonly used vesting is that of “tenants in common”.  Upon the death of one of the owners, under joint tenancy, the surviving owner(s) would receive the deceased owners interest in the property whereas with tenants in common the heirs of the deceased owner would inherit whatever that owner's percentage interest was.

 

The contents contained herein are intended for general informational purposes only, and should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances.  Anyone needing specific legal advice should consult an attorney.