Many estate planning attorneys unwittingly recommend the common ways to title property and have no idea that they are a disaster from an Asset Protection standpoint. We will look at a three common ways clients typically own their property, and why they are not good from an Asset Protection standpoint.

In layman’s terms, owning property as a J.T. allowed each J.T. the same rights, such as:

i) The right to use the whole property (with land, the right to occupy the entire property, with stocks or bank account money, and the right to spend the whole amount).

ii) The right to transfer the interest in the property without asking permission of the other co-owners.

iii) A survival right, such as when a joint tenant dies, the share of the deceased tenant automatically becomes that of the other co-owners. In other words, a joint tenant cannot transfer his/her interest at death.

(1) Joint tenancy can be severed. If one of the joint tenants sells or transfers his/her interest in the property, the joint tenancy becomes a tenancy in common (discussed in the next section).

(2) The joint tenancy is an asset of each co-owner and is subject to his/her creditors. So, if one joint owner was sued for malpractice and lost, the creditor could end up with that joint owner’s interest in the property, which would also partially destroy the joint tenancy; or potentially, the entire property could be sold to satisfy the debt of one of the co-owners.

Example: Dr. Smith owns property worth $1 million as joint tenants with his sister. Dr. Smith is sued for malpractice and has a judgment against him for $3 million (and he only has $1 million worth of malpractice insurance coverage). The creditor/patient can ask the court to sell Dr. Smith’s property that is owned by joint tenancy with his sister, or the creditor could ask the court to have Dr. Smith transfer his interest in the property directly to the creditor. Each transaction has its own consequences, but the bottom line is that the asset owned by a joint tenancy IS subject to the creditors of each co-owner.

(3) Gambling on life. Joint tenancy (unless severed) is a roll of the dice for the owners. Whoever lives the longest gets the asset. Most of the time, that is not the intent of the co-ownership arrangement, and many times, the people in a joint tenancy do not even realize the potential problems. This arises most often when a parent is trying to avoid probate and estate taxes on a piece of property and wants to give an equal share in the property to the children.

(Rights of an owner in property held as tenants in common).

i) Each owner of property held as tenants in common owns an undivided interest in the property. For example, three people (all with separate families) own a vacation home as 1/3 owner.

ii) The tenant in common interest is an asset of each co-owner and is subject to his/her creditors.

iii) The ownership interest of a tenant in common is transferable. Unlike a joint tenancy, if a tenant in common dies, the interest in the property would pass to the heirs like all other assets.

Characteristics of tenancy by the entirety:

i) Applies to married couples only.

ii) Property right is not divisible or alienable. Neither spouse can sell or encumber the property without the other’s approval.

iii) Provides additional protection over joint tenancy and tenants in common if only one of the spouses incurs a liability.

iv) Property is subject to joint creditors including the IRS.

v) Automatic rights of survivorship. (The property is automatically transferred to the spouse at the death of the other spouse).