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Why Simply Co-Owning Property May Not Be an Ideal Estate Plan

Often, people will purchase real estate or open a bank account with their spouse, child, or other loved one as a co-owner. This joint ownership is set up so that if one owner dies, the other will automatically inherit the property. In the state of Florida, there are several types of joint ownership, and some will allow for the automatic transfer of ownership upon the death of one co-owner. However, to simply have a co-owner on your major property is rarely sufficient for an estate plan. Relying on joint ownership could have implications on taxes and creditor rights, and it could even carry the risk of an unintended person receiving partial ownership of the property. Our Tampa elder law attorneys discuss the downfalls to relying solely on joint ownership for your estate plan.

Types of Joint Ownership in Florida

There are three main types of co-ownership in Florida, each with its own rights and benefits. The first is tenants in common. Tenants in common each own their proportionate share of the asset outright. For example, property owned by tenants in common would involve 50 percent ownership by each owner. Owners have the right to transfer their ownership at any time and there are no survivorship rights.

Next, joint tenants with the right to survivorship gives each owner an undivided ownership interest in the asset proportionate to the number of owners. For instance, if there are three owners, each would have a 1/3 interest. In this type of ownership, if one co-owner dies, the other co-owners will automatically inherit the deceased owner’s interest.

Lastly, tenants by entirety is only allowed for husbands and wives. Property owned by tenants by entirety is owned by the marital unit and the owners cannot separately transfer their interest in the property.

Debts of the Co-Owner Become a Risk

One of the greatest risks to joint ownership is that of creditors of the co-owner. If your co-owner owes a debt, the creditor could potentially seize the property to collect on the debt. You could inherit a new co-owner, which will be the creditor. This is even possible with tenants by entireties because the creditor can put in a claim to the property upon the death of one spouse. These risks posed by creditors could be erased with thorough estate planning.

Blended Families Present Difficulties

Joint ownership gives you limited control over your property in the long run. For example, if your spouse inherits the property through tenants by entireties, your spouse could later remarry. Your property would then be owned by your spouse and his or her new spouse. When children are involved, this could create an undesirable situation.

Your Loved One Could Owe Capital Gains Taxes

Capital gains taxes are imposed on the increased value of a property once sold. If you have a co-owner and sell the property, you would both be responsible for capital gains taxes. However, if instead the property was passed to an heir, your heirs would only be responsible for taxes based on the increased value of the property since the time they inherited it, rather than when it was purchased. For these and several other reasons, a more comprehensive estate plan tends to be preferred over joint ownership. Contact your elder law attorney for a review of your unique situation.