Joint Ownership: Often An Attractive Snare

Owning property jointly with your wife or husband - that is, listing yourselves as co-owners - may be a convenient and harmless way to handle a family checking account. But if you carry the idea much further, you are inviting serious trouble. The real difficulty begins when joint ownership is used as a short-cut substitute for long-range estate planning. That's because joint ownership gives you little or no flexibility. You forfeit your chance to direct the final disposition of your property. And in the long run it can be costly.

Here's an example of how costly: Where there's an estate of, say, £300,000 moving from husband to widow to grandchildren, the difference between effective estate planning and joint ownership might easily be over £30,000 in taxes paid by the grandchildren.

All too often, however, a husband thinks joint ownership is a safe and simple way to pass property along to his heirs, since if either he or his wife dies the other immediately becomes sole owner of the property. So he decides to postpone making a will. But look at the risk: When the husband dies, the burden of managing his property suddenly is placed in his wife's hands.

She may not be able to handle this job wisely, especially where a range of investments is involved. Often the wife will get a lot of well-intentioned but frequently ill-informed advice from friends and relatives. The reverse may hold, as well, of course: The husband may be the untrained member of the team.

Thus, your hard-earned money - and the family's security - may be jeopardized by unskilled handling. The way to avoid this, of course, is to have a professionally drawn will containing advice and instructions, and possibly trust provisions.

Another danger of joint ownership, though a less apparent one, is that your property may even wind up wholly or partly in the wrong hands. Take this example: A middle-aged man puts his property into joint ownership with his wife. They have no children, but the husband has an aged parent still living, and the wife has two brothers. The husband dies unexpectedly. A short time later the wife dies without having made a will. Since the joint property was entirely the wife's at her death, it all goes to her brothers (under state law). Likely, both husband and wife would have wanted to care for the husband's parent as well. Here the result of rigid joint ownership is an illogical, unfair, and probably undesired distribution.

Warning: Once you have got yourself locked in with joint ownership on a wide scale, there is no easy way out. Having your spouse hastily transfer joint property back to you would be a mistake - you might even wind up with a big gift tax bill. Your solicitor or other estate-planning adviser can steer you on this, advising which properties can be retransferred without tax liability.

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Should You Name Your Spouse As Executor?

In reviewing your will, take special care in naming the executor - and think twice before appointing your spouse. Such an appointment does have the advantage of saving a professional executor's commission (usually 2 to 3% of the net estate) . Frankly, though, it can prove to be folly - unless your wife or husband is as capable as you are of managing your property and investments. The job of executor is no sinecure that should be assigned for sentimental reasons.

This rule applies even if your will provides for a trust, with a professional named to oversee your assets for the benefit of the heirs. A trustee, however skilled, must wait in the wings until the estate has been settled. And... see: Should You Name Your Spouse As Executor?