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Here's what joint tenancy means for your estate plan.

Estate planning can be a time-intensive process as you determine how to divide ownership of property and other assets. Joint tenancy may be a focal point of your estate planning discussions if you’re married or own property with someone else. Understanding the basics of how it works is essential for protecting your assets and wealth during your lifetime and beyond.

What Is Joint Tenancy?

Joint tenancy is a legal definition that applies to how a property or other assets are owned. When a property is held in joint tenancy, it means that two or more people own it equally. If one joint tenant passes away, their ownership share in the property is passed on to the remaining joint tenants. There’s no need for those assets to go through probate first. The surviving tenants can use them any way they see fit.

Most often, joint tenancy ownership applies to real estate. For example, if you’re married, you and your spouse may own a home through tenancy. But it can also apply to other types of assets, including:

  • Personal checking and savings accounts
  • Business bank accounts
  • Business assets, such as equipment or real estate
  • Investment properties
  • Brokerage investment accounts
  • Vehicles

State law dictates which types of assets can or cannot be held in joint tenancy. In terms of who can be joint tenants, virtually anyone can establish this type of property ownership. For example, you might own property as a joint tenant with a spouse, your adult child, an aging parent or business partner.

Incorporating Joint Tenancy in an Estate Plan

Here's what joint tenancy means for your estate plan.

The main reason for using joint tenancy ownership in estate planning is to avoid probate. Probate is a court-sanctioned legal process in which a deceased person’s assets are inventoried and used to repay any outstanding debts of the estate, with the remainder being passed on to that person’s heirs.

Going through probate can be time-consuming, but joint tenancy allows surviving tenants to avoid delays. Instead of waiting several months for probate to be resolved, joint tenants can access assets right away. This is because ownership passes to them more or less automatically. In most cases, they may only need a death certificate to prove ownership for jointly held assets or property. And that’s good if you’re married. For example, your spouse may need to access money in a shared bank account to cover funeral expenses or pay other bills.

The trade-off, however, is that once the last joint tenant owner of a property passes away, probate becomes unavoidable. At that point, any assets remaining in the estate that are not held in a trust must go through probate before they can be passed on to the joint tenants’ heirs. And probate would still be necessary if both joint tenants were to pass away at the same time.

A joint tenancy arrangement can be broken if one person decides to sell their ownership interest in the asset. The property can then be held as tenants in common. This means that instead of having an equal share in the property or asset, each tenant may own a different percentage. For example, Tenant A may own 75% while Tenant B only owns 25%.

It’s also worth noting that joint tenancy covers liabilities for the assets they’re associated with. For instance, if you own a home as joint tenants with a spouse and you take out a home equity line of credit, both of you would be equally responsible for the debt.

Does Joint Tenancy Cancel Out the Need for a Will?

No, it doesn’t. You’d still need to draft a last will and testament to cover any assets that aren’t held in joint tenancy if you have specific wishes about who you’d like to inherit them. A will is also necessary if you have minor children that you need to name a legal guardian for.

One thing to know, however, is that joint tenancy can overrule directions left in your will.

“For example, if you and I own a bank account in joint tenancy, I will get the bank account if you die before me, even if your will says I’m not to inherit any of your assets,” says Patti B. Black, a certified financial planner at Bridgeworth in Birmingham, Alabama. “Beneficiary designations work the same way, that’s why it’s so important to make sure titling of assets and beneficiary designations coordinate with your will.”

Joint tenancy can cause problems after the fact if asset ownership conflicts with the instructions left in a will. For example, your aging parent may add your sibling to their bank account as a joint tenant to help them manage their finances. But, they may have left instructions in the will for any funds in the account to be split among you equally after their death.

If your sibling wanted to press the issue, they would be legally entitled to keep any funds from the bank account held in joint tenancy, regardless of what’s written in your parent’s will. Black says this kind of scenario can be avoided by having a parent add an adult child as an authorized signer, rather than a joint account owner.

Incapacitation and Divorce

Here's what joint tenancy means for your estate plan.

Issues with joint tenancy can also arise if one joint tenant becomes permanently incapacitated or you and your spouse decide to divorce. In the first scenario, the other joint tenant may need to have a durable power of attorney in place to maintain control over jointly held assets.

In the case of a divorce, how jointly owned property is treated depends largely on your state’s law. For the most part, jointly owned assets are divided equally in a divorce. If you and your spouse own a home together, one of you would have to give up your ownership claim to avoid any ownership issues post-divorce.

The Bottom Line

Joint tenancy can simplify some things in an estate plan by allowing your spouse or another property co-owner to bypass probate. But, it can add some wrinkles to your plan if joint tenancy conflicts with your will or you don’t have a will in place at all. Considering both the pros and cons can help you decide whether owning property as joint tenants with someone is the right fit for your estate planning goals.

Estate Planning Tips

  • If you’re not sure where to start with your estate planning strategy, consider working with a financial advisor. For example, if you own a taxable brokerage account as joint tenants with a spouse, you may have questions about how to best manage that account and what would happen if one of you were to pass away. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Talk to an estate planning attorney about titling assets and property owned by your estate as joint tenants, particularly if you have an unusual arrangement. Your attorney can help you assess gift and estate tax implications of co-owning property with a spouse, parent, child, sibling, business partner or any other individual.

Photo credit: ©, © Images Inc., © Jorruang

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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