Many times, people try to avoid probate by holding their assets in joint tenancy which is the sharing of legal title with someone else (e.g., a child, sibling) on property or accounts.
Joint tenancy will avoid probate as long as a joint tenant survives. If you are married, by taking title of your assets as community property with rights of survivorship, all community assets are the sole property of the surviving spouse after the other spouse's death, and there is no probate.
For numerous reasons, community property with rights of survivorship may only be used between married individuals.
The pitfalls of ownership as joint tenants with someone other than your spouse include:
1. Your property is exposed to creditors of all joint tenants.
2. You may create gift tax consequences when the asset is transferred to another joint tenant without compensation.
3. As a joint tenant, you give up some control over your property. (All joint tenants must approve every transaction regarding the property).
4. If one joint tenant becomes incapacitated and unable to act, the other joint tenant may be required to go to court and become appointed as “conservator” before being able to do anything with the jointly owned assets.
5. From an income tax standpoint, the death of one joint tenant permits a stepped up cost basis on only one-half of the jointly owned property.
6. Probate will still be required when the surviving joint tenant passes away.
Think Twice about Holding Your Assets in Joint Tenancy.