FAQ #9

9. Does putting property in joint names avoid the need for wills and trusts?

Joint tenancy with right of survivorship (JTWROS) is a way to avoid probate – the survivor automatically gets the property. This used to be a big selling point, but since the probate laws in my areas (VA, MD, DC) have been streamlined, and living trusts have become popular, joint tenancy as a probate-avoidance technique is now used mainly for modest accounts.

When you add someone’s name to a real estate deed, you’ve made a gift and can’t change it back without that person’s permission. You have also set up the recipient for a potentially large taxable capital gain when the property is sold, which won’t happen if the property is inherited instead.

If you add someone to a bank or securities account, you could remove the funds if you changed your mind, provided the other person hasn’t already withdrawn some or all of it. Or, you could close the account and open a new one in your name alone. All of these remedial actions are inconvenient and costly.

Putting someone else’s name on a bank account for convenience, such as bill-paying, can better be accomplished through a Power of Attorney for that account. To establish some ground rules for use of the asset, a living trust is much more effective. These alternatives also avoid resentment among adult children, and inadvertently disinheriting grandchildren if their parent predeceases you.

And beware of Payable on Death, Transferable on Death (for bank accounts and “non-probate” TOD for real estate), and similar options. They have the benefit of not letting the other account-holder take over the assets while you are still alive, but completely over-ride the instructions in your Will or trust, and you may become incapacitated and unable to cancel the account designation if you change your mind.