Kimmer W. Callahan Trusts and Estates Law Blog on Lawyers.com

Pitfalls of Joint Tenancy

Tuesday, June 14, 2011 by Kimmer W. Callahan

Photo of Kimmer W. Callahan
As an
estate-planning attorney, I am well aware that many couples and others hold
title as ¿joint tenants.¿  This is
a result of well-intentioned but uninformed advice most often perpetuated out
of habit by lending institutions, real estate professionals, and
¿amateur-night¿ advice on avoiding probate.  Joint tenancy is usually the most expensive and wrong way
to try to avoid probate.  In Idaho, joint tenancy does not necessarily avoid
probate.  Under Idaho law, joint
tenancy property is presumed to be community property and the co-tenant must
prove by "clear and convincing evidence" that joint tenancy with
survivorship was intended. 
Otherwise, the property is subject to probate.  Further, its hidden costs are even more onerous and
insidious than probate itself. 

 



Unfortunately, the
true costs are not learned of until it is too late, or are never truly grasped
at all.  Instead of the probate
industry being the main benefactor, it is the IRS who most often benefits from
this ¿amateur-night¿ method of avoiding probate.  While the survivors are busy congratulating themselves on
how easy the transfer at death was, the IRS is secretly smiling.  People use Joint Tenancy and other
¿alternative¿ methods to save the relatively low cost of investing in a trust,
and, unknowingly, usually end up costing their spouse or other loved ones a
¿bundle¿ in income taxes ¿ taxes which otherwise would never have been owed if
they had used a trust.



 



Property which passes to a co-tenant or co-owner
by right of survivorship does not qualify for a full step-up in tax basis at
the death of one owner.  As a
result, the survivor may ¿inherit¿ a significant income tax liability.  In contrast, property which passes
through a Living Trust qualifies for a full step-up in tax basis, thus
eliminating the built-in income tax liability.
 
Posted at 20:08 PM
Topic: Trusts and Estates
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