Jointly Owned Assets: How They Transfer When Someone Passes Away

Let’s talk about jointly owned assets and what happens to them when one owner passes away. This is a really important part of estate planning, and understanding it can help you ensure your assets are handled according to your wishes and your loved ones are taken care of.

Joint ownership, simply put, means that more than one person has legal rights to an asset. Think of it like sharing a car with a friend – both of you have the right to use and benefit from that car. In the world of finance and property, joint ownership is a very common way for people, especially married couples, to own things like bank accounts, real estate, and investments.

The crucial thing to understand about most types of joint ownership is the concept of “right of survivorship.” This might sound a bit legalistic, but it’s actually quite straightforward. Right of survivorship means that when one joint owner dies, their share of the asset automatically transfers directly to the surviving joint owner(s). It bypasses the deceased person’s will and the probate process for that specific asset.

Let’s break down the most common types of joint ownership that include this right of survivorship:

Joint Tenancy with Right of Survivorship (JTWROS): This is perhaps the most common form, particularly for married couples. If you and your spouse own your house as joint tenants with right of survivorship, and one of you passes away, the surviving spouse automatically becomes the sole owner of the house. No court intervention is usually needed for this transfer to happen. JTWROS can be used for various assets, including bank accounts, brokerage accounts, and real estate.

Tenancy by the Entirety: This is a special type of joint ownership specifically for married couples and is recognized in some states. It’s very similar to JTWROS but offers an added layer of protection from creditors. With tenancy by the entirety, neither spouse can sell or transfer the property without the consent of the other, and creditors of only one spouse generally cannot go after assets held as tenants by the entirety. Like JTWROS, it includes the right of survivorship.

Now, it’s important to distinguish these from another form of co-ownership called Tenancy in Common. Tenancy in common does not include the right of survivorship. If you own an asset as tenants in common with someone else, and you pass away, your share of the asset becomes part of your estate and will be distributed according to your will or state intestacy laws if you don’t have a will. It does not automatically go to the other tenant in common. Tenancy in common is often used by business partners or unmarried individuals who want to co-own property but don’t necessarily want their share to automatically go to the other owner upon death.

So, how does the transfer actually happen when there’s a right of survivorship? Generally, it’s a fairly streamlined process. For assets like bank accounts or brokerage accounts, the surviving joint owner usually just needs to provide the financial institution with a copy of the death certificate. The institution will then update the account to reflect the sole ownership of the survivor. For real estate, a death certificate and potentially an affidavit of survivorship (depending on local laws) are typically recorded with the county land records. This officially transfers the deceased owner’s interest to the survivor in the public record.

It’s crucial to understand that while joint ownership with right of survivorship can simplify the transfer of assets at death and avoid probate for those specific assets, it’s not always the best estate planning strategy for everyone. Consider these points:

• Estate Tax Implications: While assets passing to a surviving spouse often have favorable tax treatment, large estates may still face estate taxes. Joint ownership alone doesn’t eliminate estate taxes; it simply changes how the asset transfers.
• Unintended Beneficiaries: Joint ownership dictates where the asset goes – directly to the surviving joint owner. This might not align with your overall estate plan if you have specific wishes for who should inherit your assets, especially if the surviving joint owner is not who you would ultimately want to benefit.
• Lack of Control: Once you add someone as a joint owner, you generally need their consent to make changes to the asset. This can become complicated if relationships change or disagreements arise.
• Creditor Issues: While tenancy by the entirety offers some creditor protection for married couples, generally, jointly owned assets can be subject to the creditors of any of the joint owners.

In summary, jointly owned assets with the right of survivorship transfer directly to the surviving owner(s) upon death, bypassing probate for that particular asset. This can be a simple and efficient way to transfer property, especially between spouses. However, it’s essential to understand the different types of joint ownership, the implications for your overall estate plan, and to consult with an estate planning professional to determine if joint ownership aligns with your individual circumstances and goals. Careful consideration of your specific needs and wishes is always the best approach to estate planning.