Joint Ownership Versus Trusts in Estate Planning

As Virginia estate planning attorneys, we're often asked by clients who have children whether it's more beneficial to form a joint ownership with their offspring rather than a trust on their behalf. While in some respects the two achieve a few of the same goals, we generally don't recommend joint property agreements in lieu of trusts to our clients.

The idea behind a joint property agreement or joint tenancy is that ownership of the property is essentially shared between two or more individuals. In estate planning, this is commonly achieved by a parent including his or her child in the joint ownership. If one of the parties dies—presumably the parent, but this is obviously not always the case—his or her share of ownership is transferred to the survivor or survivors. It is certainly true that this can help avoid probate and probate taxes as long as there is a survivor. However, joint ownership agreements can expose the benefactor to the following difficulties:

• If both or all of the owners die at the same time, then the property may still be subject to probate and probate taxation when it passes on to the next heir (who was not part of the joint tenancy).
• The property is vulnerable to the creditors of all parties involved. Example: A mother includes her daughter as joint owner on the house. The daughter doesn't carry car insurance for a few weeks and during that time is involved in a car crash. The daughter is now forced to pay a significant sum, which she does not have, to the plaintiff. The house—which the mother still lives in—is now subject to liens or forced sale for settlement of the suit.
• If the any of the parties is married and later divorced, the property may be considered a marital asset and subject to division.

Reasons like these are why so many Virginia estate planning lawyers try to steer their clients away from joint tenancy or joint ownership agreements. In place of these arrangements, estate planners will often encourage their clients to establish a revocable living trust. This solution places the estate or portions of the estate in trust. While the principal is still alive, he or she controls the trust. Upon his or her death, a trustee will distribute the assets in accordance with the wishes of the principal.

The advantages of a revocable living trust are:

• The estate doesn't fall into probate upon the death of the principal.
• The estate is not vulnerable to the beneficiaries' creditors until the property is transferred to them.
• At any time prior to the death of the principal, the trust can be amended or revoked.
• The full value of the estate remains in the control of the principal for the purpose of securing credit.

To discuss trusts and other estate planning matters, contact a qualified, reputable VA estate planning attorney.