Avoiding Probate with Joint Ownership
In part one of this series, we examined Wills and revocable trusts, and here we will examine joint ownership as a means of transferring property upon death and a way to avoid probate. A Will only controls the distribution of assets that you own in your own name. If you own property jointly with a right of survivorship, then that property will pass directly to the joint owners at your death. Holding property jointly with a right of survivorship is thus a simple way to avoid probate.
Some property may be owned jointly as tenants-in-common (TIC). Each TIC owner possesses a proportional fraction of the property. TIC property does not have a right of survivorship. Each owner may sell, gift, devise in a Will or otherwise transfer their interest. You can check to see if you own property as TIC by referencing the deed or title to the property.
While adding a joint owner is an easy and effective way to avoid probate, there is a potential gift tax issue lurking. The moment that you add someone onto your individual bank account, for example, under federal tax law, you have made a gift to the new owner of ½ the value of the account.
In 2021, the annual exclusion amount is $15,000. So, if the value of the new owner’s share of the account on the date the new owner is added is greater than $15,000 then a federal gift tax return must be filed. Although actual tax would likely not be due because you could claim any remaining amount of your lifetime gift tax exemption (currently $11.7M), you should be aware of the issue and consult with a tax professional or attorney before adding anyone as a joint owner to any high-value assets. North Carolina does not currently have a gift tax.
An estate planning attorney is a great resource to answer any questions you may with regarding what will happen to your property when you die. If you do not currently have an estate plan or would like to have an attorney review your current estate plan, you should schedule an appointment to meet with an attorney.