Joint Ownership for Non-Spouses

According to U.S. Census data, the population of the Boise metropolitan area grew by nearly 25% over the past 10 years. So it should come as no surprise that housing in Boise is expensive. Have you considered joint ownership of a house to lower the cost to each person? Or maybe you considered adding an adult child to your bank account as a joint owner. This article addresses joint ownership with someone other than a spouse. That other person could be a significant other, a family member, or a friend.

Types of Joint Tenants

Joint tenancy means that the property passes to the surviving joint owner when the other joint owner dies. There is no need for the property to pass through probate court proceedings. Each owner has the right to possess the whole property and the right of survivorship. Tenancy in common differs because each owner has a right to possess the whole property but no right of survivorship. Therefore, the property does not automatically pass to the surviving owner when the other owner dies.

Risks of Joint Ownership

Tenants in common own property together and can do whatever they want with their share. They can sell it to another person or give it away in a will when they die. The other owner(s) cannot prevent any of these actions.

Any type of joint tenant arrangement requires complete agreement to sell, lease, or refinance the property. And the entire property is subject to the debts and liabilities of any joint owner.

For example, three siblings that inherit Mom and Dad’s house are presumed under Idaho law to be tenants in common. They cannot sell the house unless all agree. So if one child wants to keep the house for sentimental reasons, the others can’t sell the house without expensive litigation. If one of the children has debts, a creditor can take the house to settle the debt.

Joint ownership of a bank account with a non-spouse carries similar risks. If Mom and her daughter are joint owners with right of survivorship in Mom’s bank account, the account passes to the daughter when Mom dies. However, while Mom is alive the daughter can do whatever she wants with the money, even when Mom is incapacitated in the hospital. If the daughter owes a creditor money, the creditor can seek the joint bank account to settle the debt. Mom also cannot pass her bank account to anyone in her will because it will automatically pass to her daughter.

Better Solutions

Joint ownership works best when the owners agree on rights and responsibilities before purchasing a property. They need a legal agreement regarding mortgage obligations, maintenance responsibilities, and how to split the proceeds of a sale. The agreement needs to clearly address how the owners sell, lease, or refinance the property. If one of the owners has poor credit or insufficient income to purchase a house alone, this type of joint ownership agreement may be the best solution.

Joint ownership of a bank account does not carry any of the same advantages and should be avoided. Bank accounts carry a payable on death feature that lets the owner designate who gets the account when the owner dies. So a parent can name his or her children to get the account when the parent is gone. While the parent is still alive, the children cannot spend any of the money. If the parent goes to the hospital and cannot manage his or her money, a financial Power of Attorney names someone to step in and take over. This is a much better solution.

Of course, customized and affordable estate planning considers these solutions in the larger context of your complete estate plan. Contact me to schedule an appointment and find out more.