It can be confusing to determine what passes through your Will when you die. A recurring question that we hear from clients is “Do my jointly held assets pass through my Will?” It is important to understand the answer to this question, specifically as it applies to your assets, to ensure that your assets will be distributed as you intend after your death.
Let’s explore some assets that are commonly jointly held and what happens to these assets after one of the owners dies
Real estate is often owned jointly. In Pennsylvania there are different ways to hold real estate with other owners. The way that the real estate is held determines whether it passes through your Will or not.
Real Estate Owned as Joint Tenancy with Right of Survivorship: When real estate is held as joint tenants with right of survivorship, at one joint owner’s passing the real estate passes to the other joint owner or owners by operation of law. The share of real estate that you held during your lifetime does not pass through your Will when your real estate is titled this way.
Bob and his sister Sarah own a cabin together. The deed states that they hold the real estate as joint tenants with right of survivorship. If Sarah passes away, Sarah’s share in the real estate will pass by operation of law to Bob at Sarah’s death. The real estate will not pass through Sarah’s Will.
Suppose Sarah had a Will. In her Will she leaves everything to her spouse, Dave. She mistakenly believes that when she dies Dave will get her share in this real estate. Dave will not get the share in the real estate based on the way the real estate is titled. Bob gets the real estate.
Real Estate Owned as Tenancy in Common: When real estate is held as tenants in common, each owner owns an undivided ownership interest in the property. The share of real estate that a person holds as tenants in common does pass through his or her Will at death.
Let’s go back to Bob and Sarah. Bob and Sarah own the same cabin together. But, the deed states that they each own a one-half (1/2) undivided interest as tenants in common. If Sarah passes away, Sarah’s one-half (1/2) share DOES pass through her Will.
Notice the difference between joint tenants with right of survivorship property and tenants in common property. In this case, if Sarah leaves everything to her spouse, Dave, in her Will, Dave would be the beneficiary of her one-half (1/2) of the cabin property. Bob would not.
Real Estate Owned as Tenancy by the Entirety: Tenancy by the Entirety is a special way to hold property in Pennsylvania that is only available to spouses. There are benefits from a legal liability perspective to owning property as tenancy by the entirety. When it comes down to how the property passes when one spouse dies, it passes the same way that joint tenants with right of survivorship property passes, to the surviving spouse by operation of law. It does not pass through the deceased spouse’s Will.
Sarah and Dave are married and own their primary residence by tenancy by the entirety. Sarah passes away. The primary residence passes to Dave by operation of law, not through Sarah’s Will.
Joint Bank Accounts: Joint Bank Accounts pass to the surviving joint owners when one owner dies. A joint bank account will not pass through a person’s Will. Many times this creates discord at a parent’s death when one child is named as a joint owner on the parent’s account, but all of the children are named as equal beneficiaries in the parent’s Will.
Joan has 3 children. She has a checking account of $7,000.00 and a savings account of $80,000.00. Joan’s daughter, Sally, helps her with her banking. Joan adds Sally as a joint owner to her checking and savings accounts. Joan has a Will leaving her entire estate in equal shares to her 3 children. Joan passes away. The funds in the checking and savings account pass to the surviving joint owner, Joan’s daughter, Sally. The funds do not pass through Joan’s Will. Joan’s other two children are not legally entitled to any of the $87,000.00.
It is important to understand that this is how joint bank accounts work. Perhaps Joan did want Sally to have more than the other daughters. If so, to prevent disagreement at her passing, she should document this intention. However, more often than not, a child is added as a joint owner for “convenience” sake, and a parent is not always aware that the joint accounts will not pass as they have set forth in his or her Will.
Joint ownership of bank accounts can serve as a helpful estate planning tool when understood and used correctly. However, joint ownership should not be the default. Frequently, a properly executed Financial Power of Attorney is the better route to take to allow a child to help with banking.
Let’s assume that in Joan’s case, she named Sally as her Agent under a Power of Attorney and Sally helped with her banking in that role instead of being named a joint owner on Joan’s accounts. Sally would not have an ownership interest in the accounts. Instead, when Joan died the $87,000.00 in her accounts would pass through her Will in equal shares to her three daughters.
There are various factors to take into consideration with jointly held property, including liability concerns and tax concerns. It is wise to review with a Certified Elder Attorney how each of your assets is titled to make certain that your assets will be distributed at your death as you anticipated.