Is Joint Ownership Right For You?

By David W. Keister



Conventional wisdom says if you place your assets in joint ownership with your spouse, when you die, your assets will pass automatically to your spouse. Without attorney fees. Without probate costs. Without estate taxes.

It sounds ideal. But most people must deal with realities, not ideals. And the reality of the most common form of joint ownership (the ownership of property by two or more people-most often spouses-with a right of survivorship) is that it rarely works that smoothly. Why? Because, for nearly every advantage joint ownership provides, there is an equally strong disadvantage. Let's look at these pros and cons.

Pro: Joint ownership eliminates legal fees such as the cost of having a will drafted with respect to the jointly owned property and the cost of having an attorney represent your estate.

Con: Placing property in joint ownership may involve legal fees of its own. For example, new deeds may have to be drawn and professional advice concerning the tax consequences of the transfer may be needed.

Pro: Only 50% of the value of jointly owned property is included in the estate of the first spouse to die and, because this amount is offset by the unlimited estate-tax marital deduction, the jointly owned property passes free of estate tax.

Con: When the surviving spouse dies, the entire value of this jointly owned property will be included in his or her estate for estate-tax purposes. Since the estate-tax marital deduction is generally available for any property passing to a surviving spouse, the overall estate-tax result of joint ownership is the same as if the property had been owned entirely by the first spouse, who then left it outright to the survivor. The bottom line: No estate-tax advantages are gained by placing your property in joint ownership with your spouse.

Pro: Joint ownership will allow all of an owner's property to pass to the surviving owner outside of probate, thereby avoiding the publicity and expense involved in probating a will.

Con: Placing every asset you own into joint ownership is very difficult. If any assets are missed, and you have not written a will, these assets will be distributed under the state intestacy laws-in a manner that may not conform to your desires.

Pro: For many married couples, joint ownership instills a sense of family well-being, a feeling that the family is a partnership. Often joint ownership can be entered into simply and inexpensively. And joint ownership of certain assets, such as a bank account for household expenses, is convenient and practical.

Con: Joint ownership is an inflexible planning device. Once assets are placed in joint ownership, the arrangement cannot be easily amended. When you place property in joint ownership, you limit your legal control over the property. And the first joint owner to die has no say over how the other owner will use or dispose of the property.

Obviously, joint ownership is not an all-purpose solution to estate-planning problems. Nor is it a good substitute for a will. However, joint ownership does have a place in most estate plans. Few estate planners would object to the use of joint ownership for a home of moderate value or a small bank account. For other assets, though, joint ownership may not be the best alternative.

One alternative worth considering is the revocable living trust. The revocable living trust possesses certain distinct, advantageous characteristics. Specifically, since the revocable living trust is regarded as a separate legal entity, it need not terminate when the individual who created the trust dies. Thus, it can be used to protect and preserve property for a surviving spouse and for children and other descendants. And property placed in such a trust during the trust creator's lifetime will generally be excluded from his or her probate estate-with corresponding savings in probate costs.



David W. Keister is managing director and chief trust officer of estate planning and trust administration at Chevy Chase Trust Company. He can be reached at 240-497-5007 or by e-mail at dkeister@chevychase trust.com.