Joint Ownership only works if there is a survivor. A Revocable Trust always works. Most people believe that joint ownership is the answer to all succession and incapacity issues. They are mistaken. A revocable trust is almost always a better choice. How many times have I heard a client confidently declare, “we own everything in joint names.” Not being aware of the drawbacks of joint ownership and the advantages of using a living trust. Here are some of the advantages of a living trust over joint ownership.
It is true that joint ownership will probably not be a major problem when there is a married couple in their first marriage, and both remain competent. Also both husband and wife only have children of their marriage. And these children all get along. No one is likely to get a lawyer and file a lawsuit if the money or property is transferred from one spouse to the other, or joint property is transferred by one spouse from a joint account to the children of that marriage. But that is short sighted.
What happens if one spouse should die, and the surviving spouse remarries. The former joint tenancy is not longer any good and the title to property is now just in the name of the surviving spouse. If the surviving spouse should decide to leave the property to the new spouse by joint ownership, that is almost the same as disinheriting one’s own children. It is unrealistic to assume that the surviving spouse will leave the estate to your children. He or she is more likely to leave the estate to his or her own children. In a revocable trust it is possible to benefit the surviving spouse, but still protect an inheritance for the children.
What might happen if there is not a survivor? For example both joint owners die together or within a close time of each other. The estate will go into probate. The legal fees will be expensive. The heirs will wish their parents had established a revocable trust to avoid probate. I recall one such case in my office. The couple owned property in several counties in Oklahoma and in other states in joint tenancy ownership. They had set up these deeds years before. Finally in their eighties they decided they should have an attorney look them over. I explained to them the advantages to using a revocable trust. How that while probate would be avoided if one of them should die, it would not help the survivor. They wanted to think about it some. The wife died before they made it back in to see me. Unexpectedly the husband then died. Now they were both gone. The estate had to be probated. A revocable trust would have avoided the cost and expense of probate for the heirs.
Probates are required in every jurisdiction where property is owned in the name of a decedent without another method used to avoid probate. A revocable trust is a successful, time tested, method to avoid probate. Revocable trusts, sometimes called living trusts because they are made while the trust maker is alive, are accepted as valid in all states. It is not good planning to depend on joint ownership, when a revocable trust is so much better. Much can go wrong when a revocable trust is not used.
What if the children do not get along? A revocable trust can keep down the fighting by using a no contest clause. A no contest clause usually provides for disinheritance to any heir who causes too much trouble. When one uses a bank account or joint deed to avoid probate, it is not possible to explain the reasons for wanting certain property to go to a certain person at your death. But this is possible to do this in a living trust. It is not possible to use a no-contest clause in joint ownership documents such as a deed or bank account. A revocable trust has the advantage of avoiding probate, no matter who is the survivor, or if both are deceased, and of discouraging fights and contests between the heirs.
Sometimes a parent will name one child to an account as a joint owner, with an understanding that after the parent is gone, the child will share with the other children. This is the result most like a revocable trust. A parent has confidence in a certain person, much like the confidence one must have in who is chosen to be a successor trustee in a living trust. Most children named in a joint deed or account will honor their parent and follow their wishes after death. If they do not, it is very difficult for the other heirs to do anything about it. After all, all of the property went by law to the surviving owner.
What would happen if the joint owner child dies before the property can be divided among the heirs. The property would then be included in the estate of the deceased child, and belong to those heirs.
If property is titled jointly and one joint owner becomes incompetent the property would then be tied up in a guardianship of the incompetent joint owner. This can be a serious problem. There is little reason to take this risk. A revocable trust avoids that concern.
Titling property in a child’s name can backfire for other reasons. If the child becomes involved in a divorce, all property is normally frozen. Or what if the child is sued, or suffers a judgment against him or her. You could lose your property. For example, an IRS lien against the child would attach to your property. Life is full of the unexpected. A revocable trust is a better way to plan without the risks of joint ownership.
Protect your family. Protect assets. Learn about using a living trust. Get expert advice to find out if a revocable trust would be suitable for you. If you need expert advice contact Brent D. Coldiron. Brent has over 42 years experience. He has offices at 1800 East Memorial Road, Suite 106, Oklahoma City and 2801 Parklawn Drive, Suite 503, Midwest City. He can be reached at 405 478-5655 or 737-2244. You can depend on Brent because he knows what to do!