Hazards of Joint Ownership – jointly held real estate and other property.
Jointly owned property means that each joint tenant only owns a part of the undivided whole. So, when one person creates joint property by adding another’s name to the title of the property, (for example adding a child’s name), the donor makes a legal gift of one-half of the fair market value of that property to that person.
Gift Tax Issues. Unfortunately, the catch with making such a gift is that a US Gift Tax Return should be filed if the gift is worth more than annual gift tax exclusion in that year, which is $14,000 in 2017. The US Gift Tax Return should be filed with the IRS when any property, over the amount of $14,000 in 2017, is given to another person, for free or for a lesser value than its fair market value. Furthermore, if the donor does not file the US Gift Tax Return they could face a 5% interest fee each month the Return goes unfiled, up to a maximum of 25%.
Estate Planning Issues. There is also an estate planning problem with jointly owned real estate and other jointly owned property, like bank accounts: it is difficult to balance the proportionate distributive shares in an estate plan when there are other beneficiaries who are NOT joint tenants in property. For example, when there are 2 or more children in a family and only one child is a joint owner on real estate or a bank account.
Still another unexpected issue with jointly held real estate is that joint ownership makes it very difficult to change your mind once you have added another joint owner. This is difficult because, once the joint owner is added to the title to the property, especially real estate, the written consent of the donee – joint tenant – is required to order to return the gift of property to the donor. So, if the donee does not agree to give the gift back the property to the donor, that dispute, sometimes, ends up in court. That is not good estate planning. Planning to avoid these easily foreseen problems is routinely accomplished with our estate planning team.
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