In Texas following World War II, the practice of holding real property, bank and brokerage accounts “joint with right of survivorship” (or “JTROS”) emerged. It has become increasingly popular, especially among spouses.
But there are some situations in which it may not be the best approach. When you hold something joint with right of survivorship, you lose control. Are you sure of your co-owner? Is your marriage shaky?
Property may pass differently than you want or incur more taxes
Particularly if your co-owner is not your spouse, your intentions may change. A JTROS account or property could cause confusion after you die. It may cause property to pass differently than you want or in a way which incurs more taxes. Be especially careful with accounts and property outside of Texas. In some states, it belongs to the person who deposited funds – like a convenience signer account in Texas.
Real property and accounts held jointly with right of survivorship are no substitute for a will. Something is always left out, if only personal property. Dying without a will opens the door to an heirship proceeding, which can be expensive.
You might want to consider alternatives such as a pay-on-death or transfer-on-death account, a revocable “Lady Bird” or transfer on death deed or, for real property other than your homestead or real property in states which do not have Texas’s simplified independent probate administration, a revocable living trust. You will still need at least a “pour over” will to handle anything which did not make it into the trust and avoid a court-supervised estate administration. Like everyone else, you are bound to leave some debts and unpaid income or property taxes.
Tax efficient ways to pass a business or real property
You can effectively achieve tenancy-in-common with different people holding different shares by holding assets in a limited liability company or a family limited partnership. This won’t work for a 401(k) or similar retirement accounts. But it is a tax-efficient way to pass a business or real property to the next generation.