The Perils of Joint Tenancy with Your Adult Children

Despite your best intentions, it's easy to overlook one or more traps in joint tenancy ownership with an adult child. While you may achieve your goal of avoiding probate, your child’s debts, lawsuits or divorce can jeopardize your ownership.

If you were married when you bought your first home, you probably took title in joint tenancy. That's the way your parents and grandparents did it, and the real estate or title agent probably told you that doing so would, when one of you dies, keep the house out of probate.

It's not unusual for the surviving spouse to assume that, because joint tenancy worked to avoid probate the first time, it will work just as well a second time, for the benefit of the adult child who will inherit the house. Thus, the surviving spouse decides to add an adult child to the deed, as joint tenant.

But there's a trap in joint ownership with a child that you may not have considered. Here's a hypothetical to consider.

Example

Five years ago, when his wife died, Edward became the sole owner of a home and three rental properties that the couple had owned in joint tenancy. Edward is disabled and has two adult daughters, Gwen and Stacy.

Gwen visits Edward daily to do light housekeeping, and she pays his bills and does the bookkeeping for the rental properties.

Stacy and her three minor children live in another state, and she isn't involved in Edward's care or managing the rental properties.

In an estate planning move, Edward assigns Gwen as joint tenant on the deeds to his home and the rental properties. 

Edward's will indicates that he wants both daughters to benefit equally from his estate, and that he wants a portion of its value to be set aside for his grandchildren.

Notwithstanding the provisions of Edward's will, the joint tenancy deed takes precedence, and immediately upon Edward's death Gwen automatically would become the sole owner of all of the properties.

With respect to Edward's real estate holdings, Stacy and her grandchildren would be effectively disinherited.

Disaster Strikes, Estate Targeted

It gets worse. While Edward is still alive, Gwen causes an automobile accident. She is unable to pay her medical bills, and her debts go into collection. The other driver in the accident was seriously injured and sues Gwen. In the midst of this lawsuit, Gwen's husband files for divorce, seeking half of his wife's assets. Any property she owns, including the real estate she jointly owns with her father, is in jeopardy.

Wanting to protect his estate, Edward decides to remove Gwen from the joint tenancy and sell the properties. However, Gwen refuses, saying she deserves half of the assets as payment for her caretaking and bookkeeping duties. Edward must seek a court order to remove her from the deeds.

This scary scenario aside, even if Gwen had never faced debt problems, a nasty divorce, or lawsuits, Edward's final wishes for his estate might still have remained in jeopardy due to the transfer of Edward’s real estate ownership outside of the probate of his will.

Alternative Strategies

There are trust-based estate planning strategies that would have protected Edward from losing control over his estate as a result of joint tenancy with a child. Instead, he unwittingly fell into the joint tenancy trap.

As you can see from this extreme example, except for married couples, the downside of joint tenancy outweighs any upside. Please consider these risks carefully before holding property in joint tenancy with your adult child.