Preserving and Transferring Wealth: Jointly Held Property

DT OnLine Home Preserving WealthJointly Held Property
Next | Previous | Search | Preserving Wealth Contents

Chapter 5
Jointly Held Property
What the Effects Are

Are There Advantages to Holding Property Jointly?

Preserving and Transferring Wealth focuses on protecting the value of your assets.

To get an overview of estate planning, see our Estate Planning Guide for tips on wills, recordkeeping, probate and more.

Property is often held jointly without any consideration of the eventual effects on the estates of the owners. Many people hold property jointly as a means of avoiding wills and the cost of probate and, in some cases, to save state inheritance taxes. You should realize that all jointly held property passes to the surviving owner. Disposition is not governed by the terms of your will. Therefore, if you hold too much property jointly, you may face adverse tax consequences.

What Is Included in My Estate for Property Owned Jointly with My Spouse?

One-half of the value of property held jointly by spouses with right of survivorship will be included in the estate of the first spouse to die.

Example:

A married couple owns a $300,000 rental property purchased several years ago at a cost of $100,000 (all consideration furnished by husband). The husband dies, and one-half of the property’s value ($150,000) is included in his estate. Because of the unlimited marital deduction, the estate owes no tax. The wife’s income tax basis in the property will be $200,000 (1/2 of $300,000 plus 1/2 of $100,000).

If the rental property had been in the husband’s name, the full value would have been included, there would still be no estate tax, and the wife’s income tax basis would be $300,000. As long as the wife keeps the rental property until her death, the lower basis should not affect her. However, if she sells the property or gives it to her beneficiaries who eventually sell it, the lower basis could result in a significant income tax disadvantage.

Accordingly, if you hold a significant portion of your assets jointly with your spouse, it is important for you to have a current estate plan.

What About Property Held Jointly with an Individual Other Than My Spouse?

If property is owned jointly with an individual other than a spouse, the property is taxed in the estate of the person who furnished the consideration for the property. The entire value of the property will be included in the estate of the first to die unless the consideration is traceable to the other joint owner or owners. Therefore, it is important in joint tenancy relationships to retain records supporting the consideration furnished by each joint owner.

Next: Farms and closely held businesses -->

Disclaimer: This guide is not intended to be a substitute for specific individual tax, legal, or investment planning advice, as certain of the described considerations will not be the same for every taxpayer or investor. Accordingly, where specific advice is necessary or appropriate, consultation with a competent professional adviser is strongly recommended.