Can you discuss co-owning assets as joint tenants?

Joint tenancy is a particularly popular form of co-ownership. Several key features distinguish it from tenancy-in-common. One such feature is its right of survivorship. When one joint tenant dies, the jointly owned property automatically passes to the surviving joint tenant(s). Jointly owned property then passes outside a will, and thus avoids the expense and delay of probate. Because joint tenancy avoids probate, many financial and legal advisors recommend that their clients title their assets as joint tenancy. Unfortunately, these advisors don't always tell their clients how joint ownership can hurt them. In our view, joint tenancy is nearly always a mistake because it significantly increases lawsuit risks, frustrates sound estate planning and provides little or no lawsuit protection.

For starters, jointly owned property, whether personal property or real estate, creates the same lawsuit and creditor risks as does tenancy-in-common. In some circumstances you can have greater exposure. Generally, you also have the same lack of protection as you do with tenancy-in-common. Your personal creditors can seize only your interest in the co-owned property. You also have about the same tenancy-in-common risks. If your co-owner(s) has legal or financial problems, his creditors can claim his interest in the property and become your co-tenant. Alternatively the creditor can force a sale of the entire property to recover the debt owed by your co-owner(s).

However, joint ownership has an added twist. It puts you in a 'winner-takes-all' game. You 'gamble' that you will survive your co-owner (joint tenant). Because jointly owned property automatically passes to the surviving joint tenant(s), if the liability-free tenant dies before the debtor tenant, the entire property automatically passes to the debtor, and the entire property can then be claimed by the surviving debtor's creditors. For example, if you and John own the building as joint tenants, and you die, John's creditors could then levy or seize the entire building. Your family would have no further ownership claim to the building. Of course, the alternative outcome in this 'winner-takes-all' game is that if the safe co-owner (you) survives the debtor co-owner (John), you own the entire building free of John's creditors. This may be one advantage with joint tenancy: It is you who may win the game.

Joint tenancy also impairs good estate planning. For instance, if your estate plan is to gift your property at your death to your friends, you would normally provide for this in your will or living trust. Joint tenancy may frustrate this estate planning objective because whatever property is jointly owned instead passes automatically by rights of survivorship to your surviving joint tenant(s). This automatic transfer occurs the instant you die. Your will or living trust would be totally ineffective in disposing of any jointly owned property. Any beneficiaries that you designate in your will or trust to inherit your share of jointly owned property are effectively 'disinherited' since the property instead goes to the surviving joint tenant(s). We see this avoidable tragedy every day because many people do not understand this survivorship feature about joint ownership, nor do their advisors always inform them. And, as we say, plenty of folks have absolutely no idea how their assets are titled or its consequences. They should review these issues with their attorney.