Estate planners generally tout the virtues of owning property jointly — and with good reason. Joint ownership offers several advantages for surviving family members. However, this shouldn’t be viewed as a solution for every estate planning concern. You also must be aware of all the implications.

Two Types Of Joint Ownership
As the name implies, joint ownership requires interests in property by more than one party. The type of joint ownership depends on the wording of the title to the property.

From a legal standpoint, there are two main options for married couples:

1. Joint tenants with rights of survivorship (JTWROS): This is the most common form and often is used for a personal residence or other real estate. With JTWROS, one spouse’s share of the property can be sold without the other spouse’s consent. The property is subject to the reach of creditors of all owners.
2. Tenancy by the entirety (TBE): In this case, one spouse’s share of the property can’t be sold without the other spouse joining in. But TBE offers more protection from creditors in noncommunity property states if only one spouse is liable for the debt. Currently, a TBE is available in slightly more than half the states.

Property also may be owned as a ‘tenancy in common.’ With this form of ownership, each party has a separate transferable right to the property. Generally, this would apply to co-owners who aren’t married to each other, though in certain situations married couples may opt to be tenants in common.

Key Benefits
The main estate planning attraction of joint ownership is that the property avoids probate. Probate is the process, based on prevailing state law, whereby a deceased person’s assets are legally transferred to the beneficiaries. Depending on the state, it may be time-consuming or costly (or both) as well as being intrusive. Jointly owned property, however, simply passes to the surviving owner.

Disadvantages
Joint ownership is a convenient and inexpensive way to establish ownership rights, but the long-standing legal concept has its drawbacks, too. Some disadvantages of joint ownership relate to potential liability for federal gift and estate tax. Comparable rules also may apply on the state level.

For example, if parties other than a married couple create joint ownership, it generally triggers a taxable gift, unless each one contributed property to obtain a share of the title. However, for a property interest in securities or a financial account, there’s no taxable gift until the other person makes a withdrawal.

Lessons To Be Learned
While joint ownership is a valuable estate planning tool, especially because it avoids probate, it’s not the solution for all problems. Nor should this technique be considered a replacement for a will. We can help coordinate joint ownership with other aspects of your estate plan.