- A "joint account" is a very common type of account for married couples. When most people speak of a joint account, they are speaking of an account designated "Joint Tenancy with Rights of Survivorship," otherwise referred to as "Tenancy by the Entirety." This allows a couple to hold an asset as a single entity, meaning the two people act as one. If one spouse dies, the other retains all ownership of the asset. This arrangement may be made between individuals other than spouses, with the same result if one dies. If the asset is sold, each owner gets an equal percentage after jointly agreeing to sell.
- "Tenants in Common" refers to a different structure of ownership among one or more individuals. In this form, each owner may have an unequal interest in the asset. Regardless of her ownership percentage, each owner may use the asset equally. This is most common if the asset is a real property. Owners do not need to agree to sell, and each interest may be sold independently based on the owner's percentage. Upon death, the asset is transferred according to the deceased's estate plan and is dispersed to heirs or sold accordingly. So while the asset is a common interest, the ownership remains individual.
-
Many people use joint asset titling in an attempt to simplify an estate plan. A widowed parent may add a child to bank accounts and real estate for several reasons. The child may be assisting her in day-to-day maintenance of her home and living expenses. Another reason is that the parent may want the child to have easy access to the assets upon her death.
For this method to work, the account needs to be titled as joint with rights of survivorship. However, there is another consideration that many people overlook when implementing this: the value of the asset. It is possible that by adding a child, or a person other than a spouse, the value will exceed the IRS 2010 annual $13,000 gift allotment ($12,000 in 2009). This may lead to the addition of gifting taxes owed by the person, and may create liquidity issues in the estate while the person is still alive. - A person's interest in a business venture, such as a real estate income property or business partnership, should always be titled as tenants in common. Otherwise, owners are unable to sell their interest individually, and are likewise unable to pass their business interest on in an estate plan. If an owner dies and his ownership is with rights of survivorship, his interest is absorbed into the business venture and divided equally among all remaining owners. The heirs of the deceased get nothing.
- Both of these methods of joint titling are appropriate in different situations, as described above. Keep in mind that how you title an asset does nor negate the need to prepare a proper estate plan with a will. Assets between married couples are often placed in a trust with the trust as the owner, eliminating the need for joint with rights of survivorship. Assets that are in common should be listed in an estate plan, with the exact titling and description of the asset and how the deceased plans on distributing his asset percentage upon death.
