Joint Tenancy - YouTube

Hi. Lee Phillips.

I want to talk to you about joint tenancy.

They call it joint tenancy with right of survivorship.

What it is, is it's avoidance of probate.

And people have bought property together

as joint tenants, husband and wife.

I mean you walk into the title company

and they say how do you want it and you say, well

we want so we both own it

and they say fine, joint tenancy.

If one of you dies the other one owns it instantly.

You don't even miss the guy at breakfast.

You own the piece of property.

That's the way joint tenancy works to avoid probate.

However, joint tenancy is a disaster.

I'll let you use it between a husband and wife.

Mmm, yeah. Maybe.

However, never put your kids names on anything as a joint tenant.

and they call the lawyers everybody even says

well the way to do it is that

you bring your son and your oldest son and

you put his name on the deed to the house.

Let me tell you what happens.

When dad's dead, mom brings the oldest son in

puts his name on the deed to the house

because they want to avoid probate.

What happens is, first of all

when mom put the kid's name on the deed

she gave him half the house.

the word gave is a giveaway there

there's a gift tax

you can give somebody, what?

$14,000 a year now

it goes up each year with the cost of living in thousand dollar increments, but $14 grand.

You can give somebody $14,000 and not have to worry about a gift tax.

Well, I'm sorry.

Half of mom's $300,000 house is $150,000.

You just gave the son, not $14,000

a $150,000--you have to file a gift tax return.

You didn't do that, did you mom?

Nobody ever does.

Well, the IRS figures it out someday down the road.

Now there may or may not actually be a tax owing because you have the unified tax

estate tax, gift tax, unified

so there probably won't be any actual money (chi-ching) coming out of Mom's bank account

but there was no gift tax return.

Let's look at another aspect of it.

The son now owns half the house.

His name's on the deed.

That's his asset.

50% of that house is his asset.

When he gets divorced, when he declares bankruptcy,

mom lost 40% of her house.

She divides out the 50%

or she gives up her 50% of the fire sale.

And it does happen.

I have a good friend. Started kindergarten with him.

That was a while back.

And he was a contractor and funny thing is

contractors go up and they go down.

Well, they went down then brought this kid in. Man.

Put his name on the deed to the house.

Wanted to avoid probate.

And when he went under in his contracting business

mom and dad lost their house

the family house that remember playing in is gone

as far as mom and dad's concerned.

Somebody else owns it.

So the asset becomes exposed

to every one of the joint tenants and their liabilities.

They don't pay the taxes?

The IRS comes and gets that asset, they can take it all.

Even mom's half. Interesting.

So don't put the kids names on

because it's a liability.

There's a tax problem too.

When mom dies, the house is worth $300,000.

It gets a step-up in basis

to the value of the house on the day mom died.

I mean, mom and dad, they bought the house

50 years ago for $25,000.

Today it's worth $300,000

So there's what? $275,000 in gain on that house.

Well, when you give somebody a gift

they have to take the original basis when they go to sell the property.

So technically mom's half of the house gets

the step-up in basis when she dies,

so her half is worth $150,000.

The other half is not going to get a step-up in basis.

It's worth what? A half of 25 is 12.5

$12,500,

that's the kid's basis in his half of the house

so it's now worth $150,000 dollars

he has to pay capital gains

on the difference between the $150,000 and the $12,500.

His half of the house.

That capital gains will be paid

when the house is sold the week after mom died.

So, what are the capital gains taxes?

The son is just out on the order of what?

$15 grand, something like that, at least.

$15,000. That's a chunk to me.

So, you avoid probate. That's true.

Instantly the guy, the other joint tenants

there may be more than one

they own it when the other joint tenant dies.

However, you have the gift problem.

You have the step-up in basis problem.

You have the liability problem.

Don't put somebody's name on as a joint tenant.

It doesn't work.

So. This is Lee Phillips.

Yeah, I'm an attorney, don't hold that against me.

Talking on the concept of joint tenancy

and the answer is no.