Potential Pitfalls of Joint Property Ownership
Joint real estate ownership allows the property to bypass probate and pass directly to the other owner(s) upon death. However, it’s important to note that joint property ownership can lead to unintended consequences despite its appeal for succession planning. Let’s discuss these potential complications further:
Financial Risks of a Co-Owner’s Debt
Any debt or obligation, such as bankruptcy or a tax lien incurred by one owner, could affect the other. For instance, say you add your adult child to the deed of your home, but they have undisclosed debt; creditors can seize the house to collect that debt. Although your share of the property is safe, it won’t be much comfort if your home is up for auction!
The Complexities of Remarriage
Many spouses own their property or properties jointly. If one spouse passes, the other automatically gets it. Then, when the surviving spouse passes, it goes to the children they share. While this seems like the right intention for many couples, what happens if the surviving spouse remarries? The property could potentially go to the children of your spouse’s next marriage rather than, or in addition to, your own children.
Difficulties Selling the Property
In order to sell a property that multiple people own, all owners have to sign off on its sale. If one owner does not agree to sell, you will have a lawsuit on your hands. Court can lead to steep legal expenses and tension between family members.
Unnecessary Capital Gains Taxes
Say that you add your child as a joint owner of your house. You pass away, and your child is now the sole owner but would like to sell the house, as they already have their own. The seller (your child) must pay capital gains taxes based on the increase in value from when you purchased it. On the other hand, if you transferred the property through inheritance, your child will only pay capital gains taxes on the property’s value at the time of your death, not from when you originally purchased it.
Gift Tax Issues for Unmarried Partners
If you add your unmarried partner as a joint owner of your home, the IRS views this as a taxable gift. Your partner will face unnecessary paperwork and, depending on the property’s value, potential gift taxes.
A Tailored Strategy Crafted by Our Team of Experts
Deciding to enter into joint property ownership is a complex matter that requires the guidance of an experienced attorney. At Law Stein Anderson, we understand the legal implications of joint ownership and are here to help you minimize estate taxes and avoid legal risks. Our team will address your concerns and develop a tailored strategy that provides peace of mind. Contact us today for a consultation, and let us help you secure your family’s future.