Understanding Joint Ownership: Pros and Cons in Estate Planning

Joint ownership of property is a common, but misunderstood strategy in estate planning, especially for assets that appreciate like real estate or other investments. While it offers significant benefits such as avoiding probate, joint ownership comes with complexities that can impact long-term estate intentions and it can create capital gains tax bombs that might have been avoided simply by using other estate planning techniques. Understanding these nuances is crucial for any property owner considering this approach.

The Benefits of Joint Ownership

One of the primary advantages of joint ownership with rights of survivorship is the ability to bypass the probate process. In Florida, when one co-owner dies, the property automatically passes to the surviving co-owner(s) without the need for probate. This right of survivorship is particularly appealing for those looking to simplify the transfer of assets and ensure immediate accessibility to the surviving party. This kind of joint ownership is different from “tenants in common” which allows each owner to own a specific percentage of the property - which they can transfer or bequeath to a third party if they wish.

Potential Drawbacks

However, joint ownership doesn't always align with long-term estate planning goals. Complications can arise if the co-owners are not your intended beneficiaries of your estate. For instance, if a property owner adds a business partner as a joint owner, the partner will receive full ownership upon the owner’s death, bypassing the decedent's family or other intended beneficiaries the original owner might have intended to benefit. This outcome could lead to unintended and sometimes troubling consequences and disputes. It can also lead to unequal division of an estate. An owner might jointly own an asset worth $10,000 with one child and direct another asset worth $10,000 go to another child through a Last Will. However, upon death the values of those assets might have gone in different directions, or have different management responsibilities. For example, it’s easier to manage a bank account worth $10,000 than a business or real estate investment worth $10,000.

The Potential for Creating a Capital Gains Tax Bomb

When an investor buys an asset for one price and then later sells it for a higher price, that creates a Capital Gain, which is taxed at a special capital gains tax rate. When a joint owner receives an asset through the death of the other joint owner, and then sells the asset - the IRS will expect payment of a capital gains tax, even if the new owner was not the one to originally buy the asset. 

However, one who receives an asset through inheritance (through a Last Will, or a Living Trust, or even through intestacy), gets a special benefit - they are treated as if they bought the asset for whatever it’s value was on the date of death (called a “step up in Capital Gains Tax basis). So, if you sell an asset you inherit soon after the death of the prior owner, you generally owe little to no capital gains tax (since there is normally little capital gain from the date of death to the date of sale). For an asset that has appreciated quite a lot, like real estate or other investments, this can result in dramatic tax savings. 

For example, if a real estate investment was purchased for $100,000 but upon the date of death of the owner, it was worth $500,000, that results in a capital gain of $400,000. A beneficiary of that asset through a Last Will can now sell that asset for its full market value of $400,000 but pay zero capital gains tax, as there was no “gain”. The one who received that same asset through joint ownership would owe a capital gains tax. At a long term capital gains tax of 15%, the sale of that same asset would create a $60,000 capital gains tax (15% on the $400,000 gain).

Considerations for Estate Planning in Florida

Rights through joint ownership take precedence over anything a decedent may say in a Will or a Living Trust. So, if a parent owned a bank account with $100,000 in it jointly with their daughter, but in their Last Will said the same bank account should go to their son, the Will is ineffective. The daughter will receive the bank account, even though the decedent expressed something different. A Will cannot direct property held in joint tenancy if one of the owners dies, as it does not form part of the deceased’s estate. Such constraints might conflict with the owner’s desire to distribute assets in a certain way, highlighting the need for careful planning and consultation.

Alternatives to Joint Ownership 

For property owners concerned about the complications of joint ownership, there are viable alternatives:

• Tenancy in Common: This arrangement allows owners to pass their share of the property to a beneficiary of their choice through their will, thus providing greater flexibility. For example, two business owners who jointly own the business can leave their 50% share of the business to their families.
• Last Wills or Living Trusts: Establishing a Will or Living Trust offers even more control and flexibility. The Will or Trust maker can specify how assets should be handled and distributed after their death, aligning with specific goals and family dynamics, even exerting some control over the asset after death (for example, by keeping the asset in trust until beneficiaries get old enough to manage it).

Advanced Planning Strategies 

Implementing advanced planning strategies can further safeguard an estate. For example, a trust can include detailed stipulations for the use of funds, such as educational expenses, startup capital for a business, or down payments on a first home. A trust for beneficiaries can also include incentive provisions that incentivize beneficiaries to accomplish various things (ex. Early distributions if a beneficiary graduates College with a certain grade point average or above). These stipulations can ensure that the trust maker’s values and wishes continue to influence the beneficiaries’ choices and lifestyles.

Consulting Legal Professionals 

Joint ownership can be a powerful tool in estate planning but requires thoughtful consideration to align with your overall estate goals. Consulting with an estate planning attorney, such as those at Gegan Law Office, can help navigate these decisions, ensuring that your assets are protected and distributed according to your wishes within Florida's legal framework.



By understanding the full implications of joint ownership and considering alternative arrangements, property owners can make informed decisions that reflect their values and planning objectives, ultimately protecting and benefiting their loved ones in the long term.

If you're unsure how joint ownership will impact your estate, contact Gegan Law Office today. Let us help you craft a plan that meets all your estate planning needs.