Estate Planning Mistake #4 – Owning Property Jointly

Estate Planning Mistake #4 Owning Property Jointly

 This continues my series of discussions about “The Most Common Estate Planning Mistakes.” Please refer to my previous blog entries for other common estate planning mistakes

In my previous blog entries, I discussed the potential risks of leaving everything to your spouse or your children in your will. This entry addresses some of the risks of joint ownership for estate planning purposes.

There are three types of joint ownership, and each has its own set of benefits and detriments: Tenancy in Common, Joint Tenancy with Rights of Survivorship, and Tenants by the Entireties.


Owning an asset as Tenants in Common simply means that you own the asset with someone else, but without any survivorship benefit.  For example, if you and your brother buy (or inherit) a parcel of real estate together as tenants in common, each of you own half of the property. When the first owner dies, the survivor does not automatically become the owner of the other’s half. Instead, unless he has done some advanced estate planning, his half will go through probate to pass his interest to his legal heirs or the beneficiaries he has named in his will.

The result is that you now own half of the real estate, and his heirs own the other half. Like it or not, you now own the real estate with these other people (e.g. your brother’s wife and/or children).

Upon your death, your half will also need to go through probate to pass ownership to your legal heirs or the beneficiaries you have named in your will. Now the other owner is in business with your spouse or children if you happen to be the first to die?

The same example applies to ownership of a business. Unless there is an agreement providing for one owner to buy-out the interest of the other, you may find yourself with business partners you don’t want.   A buy-sell agreement, often funded with life insurance proceeds, is often used between the owners to provide the means for the survivor buying-out the deceased owner’s interest to avoid this scenario.

As Tenants in Common, at some point of time, both of your respective shares will each need to go through the time, expense, and hassle of probate. And then, the survivor will find himself with other co-owners he may or may not have wanted (e.g. the children of the deceased co-owner). Not many businesses are able to withstand the turmoil and confusion this form of ownership can cause.

If either of you goes through a divorce, that owner’s half may become part of the divorce proceedings. If either of you goes through bankruptcy, it may result in the property being sold, so the Trustee in bankruptcy can claim half of the proceeds for creditors. If either of you gets sued resulting in a judgment, again, the judgment debtor’s share may become subject to the claims of the judgment creditor, potentially resulting in a forced sale of the joint asset to satisfy the judgment. And finally, if the two of you have a disagreement about the asset (e.g. whether to sell it, improve it, lease it, etc.), you may find yourself in the midst of a partition lawsuit, which forces a sale of the property, and having the net proceeds of sale divided between the two of you.

As for tax consequences, if you and your brother bought the property for $20,000, the cost basis on your half is $10,000, and the cost basis on his half is $10,000. If you and he sell the property for $70,000 while both of you are still alive, your half of the sales price is $35,000, so you have a txable gain of $25,000.

But what if you keep the property until you die? Your heirs will get a stepped-up cost basis to your date of death value. Your brother’s heirs will get a cost basis at his date-of-death value. So, if you and your brother bought (or inherited) the asset when the value was $20,000, each of you have a cost basis of $10,000, just as in the previous example.

But if the value of your brother’s half of the asset has grown to $70,000 at the time he dies, this higher value becomes his heirs’ cost basis. And if the value continues to rise so the value of your half upon your death has grown to $100,000, this amount becomes the cost basis for your heirs. If you and your co-owner(s) now sell the property for $200,000 ($100,000 for each half), his heirs would pay capital gains taxes on $30,000 ($100,000 less their $70,000 stepped-up cost basis). Your heirs would pay no capital gains taxes ($100,000 less their $100,000 stepped-up cost basis).

This is not to say that tenancy in common is a bad form of ownership; many assets are owned in this manner If you want your heirs to inherit your share, and your brother wants his heirs to inherit his share, rather than the heirs of the survivor taking it all, Tenancy in Common is an appropriate form of ownership. But it is important for you both to understand the potential consequences of this form of ownership, and protect yourselves from what can potentially go wrong.


When one thinks of owning an asset jointly with someone else, one is generally thinking of Joint Tenants with Rights of Survivorship (commonly abbreviated as JTWROS), which means that you own the asset with someone else, and upon the death of one owner, the surviving owner becomes the sole owner of the entire asset. The first owner’s heirs or beneficiaries receive nothing. The surviving owner gets it all, and upon his death, his heirs or beneficiaries get it all.

It is a popular probate-avoidance tool, because there is no probate upon the death of the first owner. The asset passes to the survivor automatically by operation of law, without the necessity of passing through probate. For this reason, one of the most common questions I am asked by parents going through the estate-planning process, “Why don’t I just add my kids to the title to my house (or bank accounts, investment accounts, etc.). When I die, they will automatically inherit it without probate.”

This is true. But there are many potential landmines that are cause by adding a child’s name to a deed.

As I discussed above, just like owning the asset as tenants in common, if any of the kids go through divorce, bankruptcy, or get a judgment against them, since they are now co-owners of the asset, the asset is now at risk. In addition, in the case of your house, having a child’s name on the deed may interfere with the protection given to you under the homestead provisions of law (in Florida), it may affect your home’s exempt status for purposes of qualifying for Medicaid, and it may result in adverse tax consequences for your children.

For example, if you bought your house 50 years ago for $20,000, and upon your death the house had a value of $220,000, there is a gain of $200,000. If your son inherits the property from you, the cost basis steps up to your date-of-death value of $220,000 and if sold for that price, there would be no taxable gain.

However, if you add a son to the title while you are alive, he takes your original cost basis of $10,000 (half of the $20,000 originally paid for the property). Upon your death, say the property is worth $220,000, and your son sells it for $220,000. The cost basis of your half steps up to $110,000, resulting in no tax on your half ($110,000 sales price less $110,000 stepped-up cost basis = $0 taxable gain). However, since he has taken your original cost basis on his half, he would have to pay taxes on a $100,000 gain ($110,000 sale price less $10,000 cost basis)!

If the tax consequences alone aren’t enough reason not to do this, adding his name to the title constitutes a gift of half of the property based on the value as of the date of the gift (not your original cost basis). Anything above the annual gift tax exclusion allowed by the Internal Revenue Code ($14,000 in 2015) will result in a gift tax return needing to be filed (even if no gift tax may be owed). And in Florida, if there is a mortgage on the property, half of the remaining amount of the mortgage will be subject to documentary stamps at 70 cents per $100.00 in value.

Finally, if your son happens to die before you, the entire asset winds up back in your own estate, the exact consequence you were trying to avoid.

So, do not simply add someone else’s name to an asset you own, at least now without first discussing it with your attorney and/or accountant, particularly if the asset involved is homestead property or has a value much greater than what you originally paid for the asset. The unintended consequences can be unfortunate and expensive.

Upon the death of the first joint tenant, ownership automatically passes to the survivor by operation of law, without the necessity of probate. But upon the death of the surviving joint tenant, the entire asset goes through probate, unless some additional estate planning is done to avoid probate, such as by naming a beneficiary on the account, using an enhanced life estate deed for real estate (sometimes called a “Lady Bird Deed” in Florida), or putting the asset into a revocable living trust, to name a few methods.

While you are both alive, the concerns discussed above (e.g. divorce, bankruptcy, judgment creditor, or disagreement of the co-owners) still apply to an asset owned as JTWROS.

In addition to avoiding probate, there can also be some significant tax advantages through a step-up in cost basis at the death of the first co-owner.

For example, suppose that you and your brother inherited the asset when the value of the asset was $20,000. Each of you have a cost basis of $10,000. If you both sell the asset when the value is $120,000, the total taxable gain would be $100,000, or $50,000 to each of you. On the other hand, if you both keep the asset, and your brother dies when the value is $120,000, the cost basis of his share steps-up to $60,000 (half of the $120,000 date-of-death value). Now, if you sell the asset for $120,000, instead of having a total taxable gain of $100,000, you will be taxed only on the $50,000 gain on your own half, which still had a cost basis of $10,000. There would be no tax on his half, because there would be no taxable gain on his half.

Now you are the sole owner of the asset with a cost basis of $70,000 ($60,000 from your brother’s half and $10,000 from your half). If you sell for $120,000, your taxable gain is $50,000. But if you keep the asset and then die while the value is still $120,000, the heir’s cost basis of the entire asset will step-up to your date-of-death value, so if your heirs then sell the asset at $120,000, there is no taxable gain at all.


 Tenancy by the Entireties is a form of joint tenants with rights of survivorship, but only between a husband and wife. Florida is one of several states that recognize this form of joint ownership with rights of survivorship. It is not recognized in all states, and while some states permit this form of ownership to apply to bank and investment accounts, some states limit this form of ownership to only real estate.

It offers all of the benefits of Joint Tenancy with Rights of Survivorship, but adds some additional significant asset protections.

In my opinion, the most important of these benefits is the protection offered against judgment creditors of one of the owners.

As discussed above, both with Tenancy in Common and with Joint Tenants with Rights of Survivorship, if one of the co-owners loses a lawsuit and has a judgment against him, the entire property may be at risk of being seized or sold to satisfy the debt, even though he may own just half of the property.

However, in the situation of a husband and wife co-owning an asset as tenants by the entireties, the only creditors who are eligible to force a sale of the asset are creditors of both the husband and the wife. Creditors of just the wife alone, or the husband alone, have no right to make a claim against the asset.

If both the husband and wife have signed a contract, this protection would not apply, as both would be liable for the debt. But if only one or the other of them have signed the contract, the asset owned in Tenancy by the Entireties would not be subject to the claim of the creditor.

This is one of the reasons why I usually recommend against owning an automobile jointly with a spouse. As an example, if the husband and wife are co-owners of an automobile, they are both liable for damages regardless of who is driving. If the wife causes an automobile accident and their insurance is insufficient to cover the judgment, their individual and joint assets (regardless of the form of joint ownership) are fair game to satisfy the judgment!*

But if the wife was the sole owner of the automobile and is the cause of the accident, since the husband was not liable for the accident, assets held as Tenants by the Entireties would not be subject to the claim of the judgment creditor.

 * Note: The homestead provisions of state statutes may still protect certain types of one’s assets from the claims of creditors, such as your home, but they vary from state to state, and homestead protection is not the subject being discussed in today’s blog.

As I emphasize in most of my blog postings, forms of ownership, beneficiary designations, and other estate-planning considerations have many potential land mines that can negatively impact what you are trying to accomplish. Your attorney will discuss many “what-if” scenarios with you to make sure you have fully understand what could potentially go wrong with your plan.

Do-it-yourself estate planning which focuses on a single aspect of your goals (e.g. avoiding probate), without considering what else can go wrong due to your actions, can result in unintended and expensive consequences to you and your loved ones.

I will discuss additional common estate planning mistakes, and several methods of avoiding probate in future blogs.


Previous blogs regarding estate planning mistakes:

Mistake Number 1 – Dying Intestate.

Mistake Number 2 – Having an “I Love You, Honey” Will

Mistake Number 3 – Leaving Property Outright to your Children


Jerrold E. Slutzky, J.D., CFP® is a Florida-licensed attorney at law with offices in Safety Harbor, Florida and Land O’ Lakes, Florida, serving Pasco, Pinellas, and Hillsborough Counties.   His practice focuses primarily on Estate Planning Services (wills, trusts, powers of attorney, health care directives, living wills, asset protection, etc.), Probate, and Business Law Services to small business owners (buy/sell agreements, start-ups, choice & formation of business entity, business succession planning, drafting/negotiating/review of documents, confidentiality agreements, corporations, LLCs, partnerships, etc.) and General Legal Counsel & Advice.


The Slutzky Law Firm has two office locations:

853 Main Street, Suite A, Safety Harbor, Florida 34695 (Pinellas County) and

20719 Sterlington Drive, Suite 103, Land O’ Lakes, FL 34638 (Pasco County).

You can call him at (813) 909-1515, or email him at

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