Arizona joint tenancy is a legal relationship where the tenants have one and the same interest, accruing by one and the same conveyance, commencing at one and the same time, and held by one and the same undivided possession. A principal attribute of an Arizona joint tenancy is the right of survivorship. This is a legal relationship in which the entire interest of a joint tenant who dies automatically vests in the surviving joint tenants. Prescott AZ lawyers
Joint tenancy may be applied to personal property, such as bank accounts or automobiles. It may also be applied to real property. attorneysPrescott AZ lawyers
A common estate planning technique in Arizona (and elsewhere) often used by ill-informed lay persons, is to transfer title into joint tenancy with one or more other persons. The thought is that by doing so no probate will be necessary and the persons placed on the title will have access to the property upon the death of the original owner. In many cases, this is a very bad idea. There are many reasons why it may be a very bad idea to transfer property into, or to own property in, joint tenancy: Prescott AZ lawyers
Adding a person on the title as a joint tenant results in the immediate transfer of a legal interest in the property. Unless the transferee pays the fair market value of the interest conveyed, there is a gift. The Internal Revenue Service may determine that a present gift was made to the person whose name was added to the title. If no gift tax return is filed, or if no gift tax is paid at the time that the gift is deemed to have been made, serious adverse economic consequences may occur. The Internal Revenue Service may impose additional taxes, interest or penalties when it learns of the transfer.
Another consequence of adding someone to the title as a joint tenant is that the property becomes subject to the claims of creditors of the person added to the title. For example, if you add your child’s name to the deed to your home, your home becomes at risk to the creditors of your child. Thus, for example, if the child injures someone in an accident, the parents’ property is liable for any judgments rendered against the child. Your child may also be able to go to the bank and borrow money on your home. If the loan is not paid, you may lose your home.
Married couples in Arizona who take title as a joint tenant lose the benefit of the “step-up-in-basis” which results from community property ownership. Taking title to a community property house, for example, would only qualify for a 50% step-up in basis upon the death of one of the spouses. If the same house were held as community property or in a revocable living trust the property would receive a 100% step-up in basis upon the death of either spouse.
Another disadvantage of joint tenancy is the loss of control caused by the right of survivorship. The interest of the first spouse to die terminates immediately upon death and the survivor owns the entire property, despite any provision to the contrary regarding the property which might be contained in the decedent’s Will. A Will does not affect any property (real estate or personal property) held in joint tenancy title. Thus, the first spouse to die cannot give away any part of the property to any other person by Will or otherwise upon his or her death.
Joint tenancy, used to avoid probate, is effective for probate avoidance only on the death of the first joint tenant or joint tenants. A probate proceeding would be required on the death of the last joint tenant because there is no surviving joint tenant to automatically take title to the property. If the spouses die in a simultaneous disaster, instead of avoiding probate, there would be two probates. The only way to avoid probate upon the deaths of both spouses, even if they die simultaneously, is for them to hold title to their property in a living trust.
An additional reason why joint tenancy title is disadvantageous is that if one of the joint tenants becomes physically disabled (due to an accident, for example) and is unable to sign legal documents, the property could be subject to conservatorship court jurisdiction which would prevent the property from being sold until the court appoints a conservator to take care of the disabled joint tenant. The individual or government agency appointed by the court as conservator may or may not cooperate with the other joint tenant or joint tenants in the event they wish to sell the property.
While placing property into joint tenancy is a common estate planning technique, it is often a very bad idea. There may be unintended tax consequences, loss of control and/or liability risks. Other simple and expedient methods exist to plan an estate, whether the estate is large or small.