Often times spouses will hold joint title to real estate, such as a primary residence. Typically joint title is in the form of joint tenancy or tenancy by the entirety. Both forms of ownership allow the residence to be transferred to the surviving spouse without probate. Despite the probate-avoidance benefit and the relative ease in titling a residence in either joint tenancy or tenancy by the entirety, this is not a good way to avoid probate.
If both "tenants" or owners listed on the deed should die together in a common event, the residence will need to go through probate. If the owners don't have a will, then the government will determine who gets the home and how much of it they will get. This could require the sale of the home.
If just one owner dies then the home avoids probate until the death of the second spouse. However, when the second spouse dies, the home will go through probate. If the second spouse doesn't have a will, then the house will go through probate with the government determining who gets it.
If the second spouse decides to retitle the home in joint tenancy with someone else, such as a child, in order to avoid probate, there can be negative consequences. Not only does the second spouse lose half ownership of the home, but it opens the donated half to potential creditors of the child. The child could also give away his or her half to someone else, thereby severing the joint tenancy and defeating the purpose of adding the child, namely to avoid probate.
Gifting the half interest in the home could subject the gift to gift tax. Fortunately, this is less of a concern with the current lifetime exemption being so high. However, the exemption does change. It is worth mentioning that the child loses out on a capital gains tax break should the home increase in value and is eventually sold. The child gets the same tax basis as the parent. For example, if a home is purchased for $500,000 and is later sold for $900,000, the $400,000 profit is taxable (minus any exclusions). If the home was instead transferred to the child at the death of the parent, the tax basis would be elevated to the home's current market value.
Creating a new deed to add a child or someone else as a joint tenant has many pitfalls. The better option is to have a will or trust. A will still needs to be probated, but at least the homeowner can direct who gets the home. A trust is even better as it avoids probate completely.
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