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Joint Property

Can probate be avoided with the use of assets and account titled as joint tenancy with a right of survivorship? Yes, but when it comes to estate planning, it’s not planning ahead the right way like with a revocable living trust.

Titling assets as joint with a right of survivorship is what I call one of those duct tape solutions where things sound simple. However, like using duct tape instead of an actual car repair, it can get you a short distance for a limited time, but it is not ideal. Where does this technique fall short?

The most popular example is when people “put their kids’ names on their house” by redoing a deed, and we can review how each of these downsides can occur.

Failing to Account for Contingencies

If you have three children and one passes on, most people want the third that would have gone to their deceased child to instead go to that deceased child’s children, meaning the grandchildren. With a deed that is joint with a right of survivorship, that does not happen. Instead, the house would be inherited by the other two children and those grandchildren who lost a parent would receive nothing.

What if the deed could somehow be fashioned to provide for those grandchildren? (Which as far as I know can’t, at least in North Carolina.) Then it would not have any age limitations or trustee oversight, just as if those grandchildren were listed as pay-on-death beneficiaries of an account. The age of inheritance for a portion of the house would be the legal age of adulthood, which is 18. Most of my clients consider that age far too young to inherit anything substantial.

Potential Lawsuits

What if you made your house joint property with a right of survivorship with three children, and one of the kids gets sued? Your house is now on the chopping block, at least up to the twenty-five percent ownership by that child. Now it’s not only you and your lawsuits that may come against your own home that are a problem, but also your child’s lawsuits, creditors, and legal judgments. In fact, all three children’s legal problems could become yours.

While you may be able to claim some protection in your home as a primary residence, you may have “too much equity” to claim the whole house under bankruptcy laws. In fact, in North Carolina, that number is $35,000 for an individual ($70,000 for a married couple), and even if the sale of your house is not forced by the creditors, it will be available after you pass away to that child’s creditors. If the child’s creditors are particularly cutthroat, then you may end up losing your house and having to move.

Joint Property Capital Gains Tax Disaster

Using the same example, if you retitle your house so that it is joint with a right of survivorship with your three kids, your children may not get a full stepped-up cost basis when you pass on, meaning they’re going to have capital gains taxes when they sell the house. If instead the house is placed inside a revocable living trust and the trust divides your estate, including the house, equally among your three children, then if the house is sold shortly after death then there would be no capital gains taxes. Here’s an example:

There would be $375,000 subject to capital gains taxes. This is because when 3/4 of the house was gifted, the cost basis at the time was $25,000 for each of the four of you because that was the purchase price. Only your one-quarter of the cost basis gets bumped up to fair market value on the date of death, so the cost basis at the time of sale is $225,000 ($150k, $25k, $25k, and $25k).

If instead, the house was in a revocable living trust to avoid probate when you passed on, and then the house was sold shortly after and the proceeds split three ways, then there would have been no capital gains taxes.

Just because things are quick and simple by using the duct tape solution of joint property with a right of survivorship doesn’t mean it will yield the results you truly want. To learn more about avoiding probate with a revocable living trust, check out the audio and .pdf download version of my book Estate Planning Basics at

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