During estate planning, many people wish to avoid probate because it is both costly and time-consuming. There are many different ways of avoiding probate, but not all of them are perfect for everyone. For example, joint tenancy (multiparty property ownership in which a deceased party's share passes to the surviving parties) has the following potential complications.
When the surviving owner assumes full ownership of the property, they are under no obligation to share it with other people. For example, if you have avoided probate by co-owning a property with your eldest child, they don't have to share it with their siblings. If they do, the shares are treated as gifts, and as usual, the government will take its share in the form of gift tax.
The Internal Revenue Service (IRS) sets an annual exclusion of gifts that aren't subject to taxation. As at 2016, the exclusion was $14,000, which means anything above that amount is subject to taxation. At the same time, the surviving owner would only be able to gift a total of $5.45 million. With the federal gift-tax rate maxing out at 40%, you can guess how much the tax burden can be for high-value properties.
Difficulty with Modification
Modifying or terminating joint tenancy isn't as easy to do as it is with other tools of estate planning, such as a will. For example, to modify a will, you can just write a new one or add a codicil (amendment). As long as the new will or codicil is dated, signed, and witnessed, it will be valid. This means you can easily change the beneficiary of the property without anybody's permission.
Unfortunately, terminating or modifying a joint tenancy isn't that easy. You need the other owner's permission to take full ownership of the property or to remove their interest in the property. For example, if you jointly own a house with your eldest child, you can't just delete their name from the title; you need the child's permission to do it. This means you should only go the joint tenancy route if you are certain (a difficult thing) that you won't be changing your mind.
Therefore, think carefully before choosing a plan in order to avoid probate. There is no universal plan that fits everybody; rather, you need to evaluate your needs, debts, beneficiaries, assets, and all other aspects of your estate to decide which plan is best for you. Why don't you talk to an estate planning attorney today to help you figure it all out?