Jointly Owned Property Has Many Wrinkles

In South Carolina, there are basically two ways to own property jointly: tenants in common and joint tenants with right of survivorship. Joint tenants with right of survivorship (JTROS) is convenient because two people own the account and the survivor will become owner when one passes. A tenancy on common interest is a probate asset and will be subject to probate. So, JTROS should always be the form of ownership on property for married couples, right? Wrong. If survivor becomes full owner of all the assets free of trust, when they pass, their estate may be hit hard by estate taxes. Why is that? The first spouse to die’s credit was not sheltered. You see, if a husband and wife owns all their property as JTROS, then NONE of their property will be protected from lawsuits during the survivor’s life and it will ALL be subject to the estate tax. To make matters potentially worse, if all goes to a loved one, let’s say a child, free of trust, then it will all be subject to claims of their creditor’s.

Let’s say Thelma and Jack have one child Eloise. Thelma and Jack own all their property as JTROS. If Jack predeceases Thelma, all JTROS assets pass to Thelma automatically. Then, let’s say Thelma puts Eloise’s name on all accounts and the real estate so Eloise inherits the property. What can go wrong?

Thelma could get sued and lose the money during her life. Thelma’s estate could be hit hard by estate taxes (because Jack’s assets were included in Thelma’s estate). Eloise could be filing for bankruptcy and inherit the money and lose it all. Eloise could become divorced and lose half of it.

With some basic trust planning, all of the above things that could go wrong can be neutralized. Advance planning is necessary to structure affairs to sidestep the metaphorical landmines identified above. It usually involves three to four meetings. So, the moral of the story is “how” you own property can have a substantial effect on the well-being of your assets and your peace of mind.

Contributed by Mark F. Winn, J.D., LL.M. in Estate Planning, who is a local tax, asset protection and estate planning attorney.