While there are many strategies for avoiding probate, a common approach is to title assets in a way that allows the assets to be handled outside probate. Because New Mexico is a community property state, for example, the family residence will generally be community property between a husband and a wife. A common tactic employed by non-married parties it to take title to property in “joint tenancy.” Because joint tenancy includes a right of survivorship if one of the tenants dies, the deceased joint tenant’s interest automatically passes to the surviving joint tenant. While this can be an effective way to avoid probate in the short-term, it can pose problems in the long-term. Below are some potential issues for your review and thoughtful consideration.
Inadvertent Disinheritance of Love Ones:
A common scenario involves taking property with a significant other as joint tenants. When one joint tenant dies, the surviving paramour inherits the interest of the predeceased joint tenant. While this may be the intended result, the children of the predeceased joint tenant may be inadvertently disinherited when the surviving joint tenant eventually passes away. The entire interest in the asset will pass to the surviving joint tenant’s children at the time of death.
Incapacity of a Joint Tenant:
If either joint tenant becomes mentally incapacitated, the other joint tenant may need to obtain the approval of the probate court to refinance or sell the property.
Loss of Control:
When a parent decides to make an adult child a joint tenant on an asset, the adult child has the ability to encumber or sell his or her interest.
Gift Tax Liability:
An elderly parent will frequently add an adult child as a joint tenant to a bank account to facilitate use of the account for the senior’s care. However, this can be a risky proposition if the amount in the account is substantial. There is a possibility that the adding of a joint tenant will be considered a “gift” for tax purposes. This may result in unintentionally triggering gift tax liability.
Probate Not Really Avoided:
If two joint tenants own an asset together, the form of title may avoid the need for probate when the first joint tenant passes away. However, probate is really only postponed because probate may be necessary if the second joint tenant dies without a living trust or other probate avoidance strategy.
Exposure to Creditors:
If either joint tenant has credit issues, unpaid taxes, delinquent child support or liability from a court judgment, jointly titled assets can be subject to debt enforcement actions or liens.
If you have questions about joint tenancy or other probate avoidance strategies, Life Leaf Legal offers a free consultation in our centrally located offices in Santa Fe and Albuquerque during which we discuss your situation and answer your questions. Call us today to schedule your free consultation at 505.856.3591 to learn about your rights and options.
The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.