How you title real estate determines how property will pass on.
This post addresses the possible issues that may develop with one way of titling property: Joint Tenants with right of survivorship (JTWROS).
JTWROS provides that the interest of a decedent in the titled property will pass directly to the surviving title holder. Unmarried couples, siblings and non-familial property owners alike may use this way of holding title of real property or bank accounts. Married couples in North Carolina generally own joint property as tenants by the entirety, which has additional features.
Probate assets generally include bank accounts, vehicles, personal assets, and to some degree, real estate. Title held with joint tenants helps avoid probate in North Carolina, but non-spouse owners using JTWROS may face gift tax consequences. For example, if a child is added as a joint owner, this is recognized as a gift for tax purposes. (Gift valuation depends on the percentage of ownership. Between two owners, this would be 50% of the fair market value, not allowing for any discount based on partial ownership.) A tax attorney can review how the gift tax issue may be avoided under certain circumstances.
When acquiring real estate or considering a gift of real property, review options with a tax lawyer to make sure that you are aware of the gift and income tax consequences. Property owners may neglect to address real estate titles and their wishes for the property when drafting a Will. In the event one joint owner decides to pass their interest in the property along to children or family, and they update their Will accordingly but fail to change the property title, the instructions in the Will are not effective. Real estate titles supersede provisions left in a Will. If the property was held as JTWROS it will pass directly to the joint tenant regardless of the terms of a deceased owner’s Will.