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The Pros and Cons of Using Joint Tenancy as an Estate Planning Strategy in Texas

If you name someone as a joint tenant regarding property in your will or other estate planning instrument, that person will be able to access the property after your passing without first having to go through a probate court. This can potentially save your joint tenant both time and money. Your spouse or even a business partner can obtain title to your respective bank accounts, investments, real estate, and even personal property if you had the forethought to name him or her a joint tenant with the right of survivorship.

Why do the joint tenancy?

A joint tenancy with the right of survivorship is a form of ownership that you and another person can take on together. There is no limit to the number of persons who can be joint tenants but for today's blog post from the Law Office of Bryan Fagan, we are going to talk about the arrangement as if it were you and one other person. This will help us simplify the discussion and hopefully make it easier for us to learn as much as we can about this subject.

You and your joint tenant would have equal ownership rights to the property or the assets contained in the bank or investment account. The key to estate and end-of-life planning is that if you set up a joint tenancy you can have your joint tenant become the sole owner of the property once you pass away. However, before you start to draw up the paperwork to convert all your property into a joint tenancy, we at the Law Office of Bryan Fagan want you to understand why you may want to do so. From there, you can decide for yourself and those around you as to why you may want to do this.

Probate is something you should want to avoid

The probate court is where your will is reviewed, an executor is deputized, and property can be distributed to your beneficiaries once your debts have all been paid. This is an important step that needs to be taken once you have passed on. It is better to have a will than to not have one. A will gives you autonomy over your possessions and allows you to pick the people or entities that will receive help in the future. This is not something that can be said when a probate court judge distributes property according to the laws of Texas which cover a person who dies without a will.

You will name an executor in your will if you choose to create one. That executor should be someone that you trust will follow through with their duty to execute your wishes and follow the plan outlined in your will as far as property distribution. The executor does not get an opportunity to substitute their plan for yours. It does not matter if the executor disagrees with your plan. Your executor needs to follow your instructions once given the formal authority to act by the probate court judge.

Any creditors of yours have a right to be notified of your passing. The probate court would oversee this process. The creditors would have an opportunity to come forward to collect any property that they could out of your estate before the property which remains could be distributed to your heirs. This may also change how you engage in end-of-life planning. For example, you may want to make sure that you have as little debt as possible to minimize the delay between your will needing to go through probate and then property being able to get into the hands of your heirs.

A Joint Tenancy with the Right of Survivorship will automatically transfer property to a spouse, business associate, or other person named as your joint tenant on the property without having to go through probate. Imagine a situation where your business partner needs to gain access to property immediately to keep your business alive. Or, your spouse would otherwise need to have the court go through the official transfer of a piece of property to you in a probate case. This is what you can save by avoiding probate. If that is an important goal for you then the Joint Tenancy with a right of survivorship may be exactly the estate planning device that you are looking for.

You’re in this together when it comes to a joint tenancy

When you are involved in a joint tenancy with another person that means that the two of you have locked arms and are prepared to deal with the ups and downs of that relationship together. There is yours versus mine attitude when it comes to the property in question. Rather, if you do something to greatly improve the asset or property then both you and your joint tenant stand to benefit equally. However, if your joint tenant does something that harms the value of the asset or property then you both stand to equally lose in that transaction. Therefore, it pays for you both to be on the same page when it comes to property and how to best utilize the property not only for yourselves but for future generations who may be able to inherit the property once you and your joint tenant have both passed on.

In a joint tenancy if you were to take out a home equity loan before your divorce then you and your spouse would be liable for that loan when it comes to repayment. It is not as if you would be able to pass off responsibility onto your spouse for your having taken out a loan. Additionally, if you were able to gain some money or make money from rent on a piece of real estate then you would need to share your rent payments with the joint tenant.

What happens when a person dies concerning their assets

Many times when a person dies their assets become static for some time until a probate court can determine a number of issues. First, it must be determined whether you have a will. Next, if you do have a will it would need to be determined whether the will was valid. After that, if the will is valid then creditors will need to be given a period to come forward and assert any claims against you that may be valid. Once the creditors are paid or as paid as they are going to get then your beneficiaries under the will can be paid property in proportion to what the will states. Your executor can close the administration of your estate once all parties and creditors are paid, and the estate’s corpus has been exhausted.

If you do not have a will then the probate process takes a completely different direction. Not having a will means that your wishes are going to be a nonissue to the probate court. It wouldn’t matter if your wife is willing to testify to your stating many times over that you would prefer your sister-in-law to receive most of your estate when you pass away. Or that you do not want your son to receive property because you have concerns over his gambling addiction. All of this is good and well but it is not something that a probate court can rely upon.

Instead, the laws of intestate distribution will apply. Intestate is a ten-dollar word for dying without a will. If you die without a will and your estate goes through probate the first thing a court will do is appoint an administrator to your case. The estate administrator is someone who will guide your estate through the probate process. The administrator will oversee looking for heirs and notifying them of the probate process. Same for creditors. Once creditors have been paid your heirs will receive whatever property is left over. If you die with a spouse and children, these are likely the people who will inherit property from you.

While the probate process is ongoing, whether you die with or without a will, your spouse can encounter financial hardships due to their not being able to get their hands on the property that otherwise could have been theirs without much muss or fuss. Planning is the key part of this discussion and if you engage in proper planning then your property concerns won't amount to much. Thankfully you have the tools and you can develop the knowledge necessary to engage in that kind of planning. Unfortunately, you don't know how much time you have to start that planning before the opportunity is lost.

A joint tenancy is not something that you necessarily need to include in a will or any other type of estate planning document. It can be a legal document that is created independent of any specific estate planning measure. Rather, you can create a joint tenancy with the right of survivorship just as a way of structuring your business or handling matters related to your family. You need to be intentional, however. It isn't as if you can fall into a plan to create a joint tenancy. Usually, you need to have a plan in mind when you set out to do something like this.

Your joint tenant is someone who can use the property however he or she sees fit. The property can be held and used for whatever purposes your spouse or business partner sees fit. For your spouse, we are likely talking about keeping your marital home for his or her use. The house can then be distributed to a child or other person in your spouse's updated will. Your business partner can hold onto the business interest and use it for making money and continuing the business that the two of you used to be partners in.

Why could a joint tenancy not work out for you?

It may not work well for you and your business partner if the two of you stop seeing eye to eye on how to run the business. A popular financial guru likes to call it the “Four D’s: Death, Divorce, Disinterest, Drugs." Death, we have been talking about death all day today in his blog post but it is worth mentioning again that you need to understand that if your business partner dies then you can become the complete owner of the business entity or property with a joint tenancy. However, to get to that point you need to hope that the other issues we are about to discuss do not rear their ugly heads first. Divorce is another issue for you to consider. Hypothetically, you could find yourself a joint tenant with your business partner's ex-wife. Is this likely to happen? I don't think so, but it certainly could be that the business interest switches hands in a divorce. This is not what you signed up for and maybe a reason for not only the joint tenancy being a great idea but also why a business partnership may not be a great idea.

Disinterest and drug use stem from the same area of concern. If your business partner is not locked into the business plan, if the two of you don't communicate, or if the two of you just have different interests after some time, then the business won’t work and neither will a joint tenancy with the right of survivorship. Be wary of all these things when you start a business and think about how to handle your assets in connection with an end-of-life situation. It is never too early to start to consider your options when it comes to planning on these subjects. The deeper you get into a business the harder it may be to start to consider your options and change directions if need be.

Another situation that may come up before an end-of-life situation involves if you or your business partner become incapacitated or otherwise unable to make decisions because of an illness or injury. What if your business partner were injured in an accident and as a result had to be put into a medically induced coma? While he is in that coma there arose a situation regarding your business that was troublesome and should have immediately led to your business being sold may not happen for some time if your partner is in a coma. You may have to run your case through a probate court for the court to give you permission to sell or otherwise make a decision regarding your business.

Final thoughts on joint tenancies

There is no perfect answer when it comes to your joint tenancy circumstances. While a joint tenancy may make sense in some areas it could be that you are in a difficult spot in other areas and need to consider something altogether different. When you think about opening a joint tenancy with another person that means that you need to be comfortable being in a legal relationship with him or others that can change your future and that of your family. If you are in a marriage with your joint tenant then there should be no issues here. The same cannot be said of a person that you are in a business partnership with. It could be that you all became partners as a matter of convenience and had no intention of remaining as partners for too long.

So, thinking through the possibilities of a business partnership as well as a joint tenancy would be a wise decision at this stage. No matter if your business has existed for many years, it is still a good idea to give your situation a review consistently. You may find out that you have been tolerating a structure within your business just to address the changes that need to be made. Rather than put off necessary changes you can kill two birds with one stone by addressing structural issues within your business and taking care of estate planning which you have also been putting off.

All in all, you need help when it comes to estate planning and the structuring of business and marital property. The Law Office of Bryan Fagan is uniquely suited to help you with these types of questions. We have walked alongside people in your circumstances before and we would be honored that you would consider our office when it comes to your legal representation needs.

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today's blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, or via video. These consultations are a great way for you to learn more about the world of estate planning and also about how your family's circumstances may be impacted by the filing of a probate case. Thank you for spending some time with us today and we hope that you will return as we continue to share unique information about estate planning here on our blog.

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