Owning property together seems like a natural consequence of marriage.
In general, that means that when one spouse dies, the other automatically becomes the sole owner of the jointly held property. And because the deceased owner's interest in the property disappears at death, it's usually protected from claims by his or her creditors.Too much joint ownership in a family, however, can wreak havoc with an estate plan. Keep the following in mind when planning your estate:
- Joint ownership doesn't keep property out of the deceased's estate. If the couple are joint tenants with right of survivorship, half the property is included in the gross estate of the first spouse to die. The full value will be included in the survivor's estate, which could result in a bigger estate tax at that time.
- Joint ownership can waste the $600,000 federal estate and gift tax exemption.
While you can give all your estate to your spouse tax free, that may not be the best strategy. Pulling $600,000 out of the otherwise tax-free transfer to a surviving spouse and putting it in an exemption or bypass trust for others uses up your $600,000 exemption and reduces your spouse's future federal estate-tax liability when he or she dies. Assets in such trusts bypass the survivor's estate.
Many couples build their estate plan on the assumption that the husband will die first. Relying too much on that scenario may cause you to overlook the tax consequences on the combined estate if the wife owns very little in her own name and dies first.
- It's no substitute for a will.
Property owned jointly will pass directly to the survivor with or without a will. But if your co-owner later dies without a will, the property will be divvied up by your state's intestate rules. Should you and your spouse die simultaneously without wills, your estate could go to people you don't want to get it.
Without a will, property you own individually will be distributed according to your state's intestate rules. This includes property owned with others as tenants in common.