Loss of Control
Once you transfer an asset into joint ownership, you will need your joint owner’s approval and signature to sell it or transfer the asset. If your joint owner were to become incapacitated, you would need to petition the court to regain control of your property.
Risk of Lawsuits
In today’s litigious society, assets and insurance are the name of the game. If you place another person’s name on your property in joint ownership, your property is now exposed to the potential lawsuits of that joint owner. A car accident is a good example. If your co-joint-owner is involved in an accident and the insurance denies coverage or is insufficient, your jointly owned property will be targeted.
If your joint owner goes through some bad times and runs up some debt, your jointly owned property will be the focus of creditors seeking payment. Judgments and abstracts of judgment can attach to the property clouding title. If your joint owner has any tax problems, previous, current, or in the future, the tax liens will attach to your property.
Gift Tax Consequences
Placing a child or loved one’s name on your property as a joint owner is the equivalent of making a gift. If the value of the property gifted is over $14,000, there may be gift taxes incurred. Gift taxes range from 37% to 55% and if overlooked can result in stiff penalties and interest.
Capital Gains Taxes
One of the great benefits of properly passing appreciated property to your beneficiaries is that the IRS allows them to take a stepped-up basis on the property. Without getting too complicated, that means that an appreciated property can entirely escape capital gains taxes. On the other hand, if incorrectly planned, such as passing property by way of joint ownership, a significant portion of the stepped-up basis benefit is lost and your loved-ones will end up paying capital gains taxes that could easily have been avoided. This applies to spousal use of joint ownership as well.