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No Substitute

Julian Block  |  March 13, 2018

FOR REASONS THAT MAKE LOTS OF SENSE to my clients, many of them place their homes, securities and other assets in joint ownership with their spouse or children. A characteristic of joint ownership is the right of survivorship—the co-owner who dies first loses all ownership in the property and the surviving co-owner acquires all ownership.

Many individuals mistakenly believe that joint ownership relieves them of the need to write a will. To be sure, property owned jointly will pass on the death of one co-owner to the surviving co-owner, even though the deceased co-owner has left no will. Additionally, it enables them to avoid some of the costs and delays of estate administration.

Still, joint ownership isn’t a cure-all. I have a client I’ll call Elysa Blaine. I caution her and other co-owners not to focus only on the seeming advantages. In most cases, it’s inadvisable for them to use joint ownership as a substitute for a will. I mention several key caveats.

For starters, it’s difficult for Elysa to put all of her property in joint ownership. In trying to do this, she’s bound to overlook some items. The long list of possibilities includes jewelry, art collections and other kinds of collectibles.

I tell Elysa more than she’ll ever want to know about the dire things destined to happen if she spurns my advice and dies without a will. In particular, her overlooked assets aren’t going to wind up with the individuals she intended to benefit.

Instead, they’ll pass in accordance with her state’s impersonal and inflexible intestacy rules. (Intestate is the legal term for someone who dies without a will or writes one that’s invalid.) Consequently, the intestacy rules could bestow assets on individuals whom Elysa never intended to benefit or whom she considers to be less deserving of her largess than others. Those troublesome rules also kick in when two co-owners who’ve not made wills die simultaneously or under circumstances that make it impossible to determine which of the individuals was the first to die.

Another possible drawback: Elysa’s assets go directly to the survivors. With a will, she is able to control who gets how much and when, so it’s harder for surviving beneficiaries to spend their inheritance too rapidly or dissipate it unwisely. To entice Elysa and other recalcitrant clients to prepare wills, I spin yarns about beneficiaries who blew their inheritances on slow horses and fast women.

An added complication: What might happen if taxes (or other debts) are due on Elysa’s death and no funds have been set aside for their payment? This can cause trouble if her surviving co-owners refuse to cooperate.

Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator). His previous blogs include Rendering Unto Caesar, Check Him Out and The Last Word. This article is excerpted from Julian Block’s Easy Tax Guide for Writers, Photographers, and Other Freelancers, available at JulianBlockTaxExpert.com. Follow Julian on Twitter @BlockJulian.

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