Inflexible Joint-Tenancy Ownership Can Create Estate Planning Issues.

I talk with many people that believe that simply having all of their assets owned as joint tenants with the right of survivorship (JTWROS) is an adequate estate plan to avoid probate. Most of the time, the person wants to avoid the cost of setting up a trust and feels JTWROS is an adequate probate avoidance scheme. Many of these people are either husband and wife, figuring out their estate plan together, or a child (or children), figuring out their estate plan with a parent(s). While JTWROS, or, in the case of a married couple, tenancy by the entirety (or entireties), does have a number of positive aspects, it does create unforeseen problems.  Part 1 will deal with some of the unforeseen issues that can arise when property is owned by a married couple.

A quick primer on ways you can own property can be reviewed here.  JTWROS ownership of asset arises when two or more people own an asset.  Under JTWROS, when one of the owners of the property passes away, the ownership rights of the dying owner extinguish. The remaining surviving owners retain ownership of the asset until one person is standing.  It is sort of like a real life “Survivor.”

Much like intestate provisions, there is no flexibility with JTWROS. The transfer of ownership is by operation of law. A joint owner’s Last Will and Testament direction over distributing the property is immaterial and will have no impact on the transfer.

Many married couples buy their homes as husband and wife under either JTWROS or tenancy by the entirety and assume the home will transfer to the surviving spouse upon the first spouse dying. Many couples also figure if one spouse dies, there will be time to make arrangements to correctly distribute the house. But, unexpected outcomes arise all the time that could negate this idea.

I will take the basic scenario of a married couple who own their own home under JTWROS in Virginia and get into a car accident to demonstrate various unpredicted outcomes. I will also assume that there are no issues as to survivorship periods.  What results did you get? (See answers below):

  • Scenario 1 – no children. Husband dies at the scene of the accident and wife dies 6 days later.
    • Wife takes sole ownership of the house upon death of husband. If she has a will, the house will be distributed according to any provisions in the will directing where the house should go. If she has no will then the house will be distributed by intestate distribution of the wife’s estate.
  • Scenario 2A – two minor children. Wife dies at the scene of the accident and husband dies 6 days later leaving 2 children.
    • Husband takes sole ownership of the house upon death of wife. If he has a will, the house will be distributed according to any provisions in the will directing where the house should go. If he has no will then the house will be distributed by intestate distribution to the minor children. Since minor children are unqualified to own property, the house is placed under the control of a custodian (possibly the children’s guardian). If the house is not sold by the custodian to pay for the children’s health, education or other living expenses, each child will receive fifty percent (50%) ownership interest in the house by tenants in common when each child turns eighteen.
  • Scenario 2B – two minor children. Husband and wife both die at the scene of the accident.
    • One half (1/2) of the ownership of the house would be placed in the husband’s estate and one half (1/2) in the wife’s estate. If they had wills, then wills would dictate distribution of house. If they died intestate, then house is controlled by a custodian If the house is not sold by the custodian to pay for the children’s health, education or other living expenses , each child will receive fifty percent (50%) ownership interest in the house by tenants in common when each child turns eighteen.
  • Scenario 2C – two adult children. Husband dies in accident and wife dies 6 days later in the hospital.
    • Wife took sole ownership of the house upon death of husband. If she has a will, the house will be distributed according to any provisions in the will directing where the house should go. If she has no will then the house will be distributed by intestate distribution of the wife’s estate. In this case, intestate provisions would give each child fifty percent (50%) ownership in the house by tenants in common.
  • Scenario 3 – second marriage with one child from wife’s previous marriage. Wife dies at the scene of the accident and husband dies 6 days later in the hospital.
    • Husband takes sole ownership of the house upon death of wifeIf he has a will, the house will be distributed according to any provisions in the will directing where the house should go. If he has no will then the house will be distributed by intestate distribution. If the husband adopted the child then the child will inherit the house based on Va. Code Sec. 64.1-1 and 64.1-5.1. But, if the child was not adopted, the child will receive nothing because the child would not be an intestate heir of the husband.
  • Scenario 4 – second marriage with three children, two children were from husband’s previous marriage, one child is the wife’s previous marriage.  No child is adopted by the other spouse. The husband originally bought the house before getting married and places the wife on the deed under JTWROS after getting married. Husband dies at the scene of the accident and the wife dies 6 days later.
    • Wife takes sole ownership of the house upon the death of the husband. If she has a will, the house will be distributed according to any provisions in the will directing where the house should go. If she has no will then the house is distributed by intestate succession. Under intestate succession, the child of the wife takes full ownership of the house.  How would you like to explain to the deceased husband’s children that they will not receive anything from their father’s probate estate?

As you can see, having assets owned under JTWROS can simplify estate planning if only simple life events occur. However, life is never simple, and a simple plan gets overwhelmed under just slightly atypical occurrences.

I will post future issues with respect to JTWROS in the coming months.

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About Chris Guest

I am a trust and estate planning attorney working in the Washington, DC metro area. I offer comprehensive estate planning, trust administration, probate services and general business counseling for accountants, attorneys, business owners, consultants, federal and local government employees, retirees, other business professionals and other individuals.
This entry was posted in Asset Ownership, By Individual, Joint Tenancy, Probate, Probate Assets, Tenancy by the Entirety. Bookmark the permalink.

2 Responses to Inflexible Joint-Tenancy Ownership Can Create Estate Planning Issues.

  1. Pingback: Bundle of rights included in Ownership | Legal Notes

  2. Pingback: What’s the Difference between Probate and Non-Probate Assets? | VA Estate Planner

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