Many
people own assets jointly with others, and there are often sound
reasons for such joint ownership. But joint ownership arrangements
should be entered into carefully to avoid unintended results.
Considerations specifically regarding use of the right of survivorship
feature for jointly owned assets in North Carolina are the subjects of
this month’s Legal Moment.
Determining the Interests of Joint Owners
When there are two joint owners of an asset, each owner is generally
presumed to have a 50% interest in the asset unless a different
ownership portion is specified in the governing document. If there are
more than two joint owners, the presumed portion would adjust
correspondingly. Under some circumstances, the presumptive portion
attributed to an owner may be overridden by situation-specific facts —
an issue that is beyond the scope of this article. Ownership interests
of assets may be determined as follows:
- Ownership interests in real estate are reflected in identified
“Grantees” in deeds, or under “deed substitutes” (for example, a
probated Will which specifies to whom the real estate passed).
- Ownership interests of jointly held bank accounts and investment
accounts are generally reflected on “signature cards” (agreements)
signed by the joint owners of the accounts.
- Ownership interests in a vehicle are reflected on the Vehicle Title
issued by the North Carolina Department of Motor Vehicles.
Right of Survivorship Feature (“ROS”; “WROS”; “JWROS”; “JTWROS”)
Jointly owned assets may or may not include a right of survivorship,
depending upon the applicable ownership arrangement. If the joint
ownership includes a right of survivorship, then the interest of a
deceased owner usually passes automatically to the surviving owner(s)
and is not subject to the terms of the deceased owner’s Will (or, if
there is no Will, to the applicable intestacy statutes.) In contrast, if
there is no right of survivorship feature, the deceased owner’s portion
passes by the terms of the Will or by intestacy statutes, and is
subject to probate requirements.
The “right of survivorship” feature it typically designated as such
or by use of one of these abbreviations: “ROS,” “WROS,” “JWROS,” or
“JTWROS.”
Real Estate
North Carolina real estate purchased and owned by a married couple is
specially classified as “entireties property,” and it passes
automatically to the surviving spouse without specifying right of
survivorship. Entireties property can exist only between spouses and is
recognized in North Carolina only in real property (real estate). In
addition to the automatic, implicit right of survivorship feature, each
spouse’s interest in entireties property is protected from the creditors
of the other spouse.
For real estate other than entireties property, to establish a right
of survivorship, the governing document (the deed, or, if inherited, the
Will provisions) must specify a right of survivorship. If there
is no right of survivorship, the joint owners are “tenants in
common,” and the interest of each owner in the real estate can be
transferred by deed, Will, or inheritance without the consent of the
other joint owner(s). Such a “tenancy in common” frequently arises when
two or more children inherit a piece of property from their deceased
parent.
Personal Property
Investment accounts generally reflect the right of survivorship (if
any) in the name (“title”) of the account, which typically appears on
account statements. On the other hand, bank accounts do not generally
reflect the right of survivorship in the title of the account. Instead,
one must examine the signature cards on the account to determine whether
a right of survivorship exists. We recommend that you keep with your
important papers copies of the signature cards for all your jointly
owned accounts. Court clerks often require signature cards to document
joint accounts and the survivorship feature when a joint owner dies.
Most importantly, we recommend that you review each of your bank and
investment accounts to ensure whether the status with respect to the
right of survivorship feature accords with your wishes. Some
considerations are highlighted below.
With regard to a jointly owned vehicle, a right of survivorship
feature must be indicated on the North Carolina Vehicle Title (most
likely with one of the abbreviations above); otherwise, there is no
right of survivorship upon the first owner’s death, and the deceased
owner’s portion must be administered in some manner.
Considerations Regarding the Use of the Right of Survivorship Feature for Jointly Owned Assets
- Many married couples own some or all of their assets jointly with
right of survivorship — and this can be a sensible choice that allows
them access to common funds, and provides a simple method to avoid
probate upon the first spouse’s death. However, a right of survivorship
feature is not appropriate if the intention is to have the deceased
spouse’s portion go to beneficiaries other than the surviving
spouse.
- There are significant cautions over the use of the right of
survivorship feature for joint owners other than married couples. When
contemplating a right of survivorship aspect to ownership, we recommend
that you carefully think through all the different possible scenarios
that could occur. As an example, if you and your parent purchase a house
together and add the right of survivorship feature, the two of you may
be thinking the house will eventually become yours. However, if your
parent survives you, an unintended result may occur if you have a spouse
or someone else to whom you wish to give your portion of the
house.
- One of the most common unintended results of the right of
survivorship feature (and of joint accounts generally) occurs in the
situation where someone adds a joint owner to an asset for convenience,
but does not actually intend for the asset to go entirely to that
person. For example, a parent may have multiple children who are
intended as equal beneficiaries of the parent’s estate, but for
convenience the parent may add one of the children as a joint owner, to
assist with management of bank or investment accounts. This can result
in inadvertent disinheritance of the other children. Adding the child as
an authorized signer on the accounts, or utilizing a Power of Attorney
are ways to accomplish the goal of assistance, without risking
disinheritance of others. There are a number of other ways inadvertent
disinheritance can occur—for instance, conversely, if you are relying on
the right of survivorship feature to pass a certain portion of
your estate to a particular beneficiary, and if the asset is no longer
in existence at your death (or is in existence at a far lower value than
you contemplated).
- Joint bank and investment accounts often include the right of
survivorship feature by default unless you request otherwise. If that is
not your intention with respect to the account, you will need to
override the default.
- A complication can arise for your Executor if a probate procedure
is required for your estate, and if there are not enough probate assets
(assets without right of survivorship or beneficiary designations) to
pay the debts and expenses of the estate administration. It is
worthwhile to think about whether the use of a right of survivorship is
likely to ease the settling of your estate—or make it more
difficult.
Conclusion: Pay Attention to the Use of the Right of Survivorship Feature for Jointly Owned Assets
This article is not an exhaustive list of ways in which the use of
the right of survivorship feature for jointly owned assets can go wrong
(and it is not a discussion of benefits and detriments of joint
ownership itself); instead, this Legal Moment is intended to highlight
the importance of:
(1) Knowing whether your jointly owned assets have a right of survivorship feature; and
(2) Determining whether the right of survivorship feature is appropriate to your goals.
There are certainly constructive uses of the right of survivorship
feature, but it should be used thoughtfully and deliberately. You may
wish to consult with your estate planning professional about use of the
right of survivorship feature with respect to your particular situation
and assets.
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