Probate is deferred, not avoided
You can lose tax benefits on appreciated property held by married couples
You lose the opportunity to provide asset protection for the surviving spouse
You lose the opportunity to provide asset protection for your heirs.
You lose the opportunity to provide for children from prior marriages
2. Loss of Tax Benefits for Appreciated Property Held by a Married Couple
The effect of this is that a surviving spouse can sell any appreciated community property after the death of his or her spouse and all capital gains are eliminated. All proceeds are tax-free. It just doesn’t get any better than that – no taxes.
It’s a completely different result for sale of property held in joint tenancy. Only one half of the property receives a stepped-up basis. Stated another way, only half of any capital gains are eliminated. Half of the gain is retained.
To illustrate, if a couple held property in joint tenancy with a built-in capital gain of $100,000 and spouse #1 dies, when the survivor sells the property there is a $50,000 capital gain. If the property were held as community property, the gain would be zero.
There are two main options to have your assets be community property: (1) hold your assets in a living trust; or (2) hold title as community property with rights of survivorship (CPWROS). NRS 111.064.
The Nevada legislature enacted this statute clear back in 1981 to afford us as Nevada residents the opportunity to have the right of survivorship feature of joint tenancy while retaining the favorable tax treatment of community property. Yet this favorable way to hold title is rarely used.
5. Loss of Asset Protection for Your Heirs
Similar to protecting your assets for your spouse or partner, your entire estate can be held for your heirs or beneficiaries 100% protected for them throughout their lives. This inherited property can remain their separate property regardless of whether they are married or single. It can serve as a built-in “prenuptial” agreement maintaining all inherited assets as their separate property in case of a divorce.
Assets can further be 100% protected from any and all claims against your beneficiaries throughout their lives.
This can be very simply and easily accomplished by setting up trusts for your children or other beneficiaries within your living trust. You lose all these opportunities for asset protection if you merely hold your properties in joint tenancy.
6. No Protections for Children from Prior Marriages
One of the real, hidden drawbacks of holding property in joint tenancy is that children from a prior marriage will likely get disinherited.
For example, suppose a couple have two children together and the wife has a child from a prior marriage. The wife dies first. All property held in joint tenancy automatically passes to her husband. Upon his subsequent death, her child from her prior marriage is not one of his heirs at law and inherits exactly zero from him.
If the intent of the couple is to provide for all three children, the best way to accomplish this it to hold their property is a living trust.
7. Never Hold Property in Joint Tenancy with a Child
If joint tenancy is bad for couples, it’s much, much worse between a parent and a child. Why?
Your property can be attached by any creditor of your child.If your child gets divorced, is in a car wreck, has unforeseen medical expenses, has a business failure, files bankruptcy, etc., your property can be attached by the creditors of your child.
You lose the ability to eliminate capital gains on appreciated property.