Joint Tenancy and Living Trusts for Married Couples

Many clients are under the impression that joint tenancy is an easy way to pass on property to your spouse.  There are several ways to hold title in your property.  However, you may want to consider using a living trust instead.  Joint tenancy and living trusts each have their own advantages and disadvantages.

What does joint tenancy mean?

Whenever two or more individuals jointly own property, it is considered “joint ownership.”   There are different forms of joint ownership, including tenancy in common, joint tenancy with right of survivorship and tenancy by the entirety.  When ownership is in the form of a tenancy in common, a decedent’s share passes through the probate process to his or her heirs.  In a  joint tenancy with right of survivorship, when one of the joint tenants passes away, that person’s ownership passes to the joint tenant who survives. Tenancy by the entirety is basically the same as joint tenancy with right of survivorship, except that it only applies to married couples.

Disadvantages of joint ownership

There are some significant disadvantages to joint tenancy and tenancy in common ownership.  The first problem is that creditors can attach property held in tenancy in common ownership to satisfy debts.  In joint tenancy with right of survivorship one thing to consider is the fact that probate can still occur upon the death of the last surviving tenant.

What is a living trust?

A living trust is a legal document through which you can place your assets into a trust for your own benefit during your lifetime, and subsequently transfer those assets to the beneficiaries you choose upon your death.  A living trust is also referred to as an “inter vivos” trust or “revocable” trust.  You serve as the initial trustee and your selected successor trustee manages the trust after your death.

Why is a living trust better than joint tenancy?

In addition to avoiding probate, there are a variety of benefits to creating a living trust.  A living trust allows you to protect your property for your spouse, while reducing estate taxes, planning for incapacity and avoiding any contest relating to a will.  A properly drafted living trust can be a valuable addition to a comprehensive estate plan.

Reducing or Eliminating Estate Taxes

Revocable living trusts are not specifically exempt from federal estate taxes, however, they can be used to benefit from certain tax deductions and credits.  Any property that passes directly to a surviving spouse will be exempt from federal estate taxes through the unlimited marital deduction.  Any portion of an estate that is not protected by either the unified credit of $5.34 million, or the marital deduction, will be subject to a federal estate tax of 40%.

Instead of leaving all of your property to your spouse, which would require that you use your exemption, you can transfer a part of your estate to a revocable living trust.  Your spouse remains the primary beneficiary during his or her lifetime, which makes the funds accessible to your spouse whenever needed.  The remaining portion of your estate will pass to your heirs at your spouse’s death.  In this way, federal taxes will not be paid upon your death, as your property is in the revocable living trust, which is exempt by way of the unified credit.

If you have questions regarding a joint tenancy, living trusts, or any other estate planning needs, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.