In this article, we’ll discuss creditor’s access to joint tenancy assets of the deceased person and the surviving tenant(s). We’ll also discuss a few drawbacks and limitations to be aware of when considering joint tenancy with respect to creditor’s claims.
Can a creditor go after joint tenancy assets?
Joint tenancy (with rights of survivorship) is extremely common between spouses and in nearly all cases creditors very little to no rights against property held in joint tenancy between the deceased person and the joint tenant. Upon death, the decedent’s interests transfer directly to the surviving tenant, escaping probate and the legal reach of the creditors. This may sound like joint tenancy is a done deal with little to worry about upon death, however, it is not full proof. Below are a number of restrictions and limitations associated with joint tenancy assets:
- Death of individual and spouse involved in joint tenancy assets - While it is true that if a spouse dies their interest in the property should avoid probate and pass directly to the spouse or joint tenant, if, for example, a husband and wife died in a car accident and the proper will and/or trust was not constructed prior to death then the property may pass through probate. While this scenario is less likely it does still happen, but it also serves to highlight the need to add a new joint tenant after the death of the spouse and/or get proper estate planning.
- More is not always merrier in joint tenancy - Be aware that anytime another person is added to a joint tenancy you are subjecting that property to the reach of creditors connected to the new joint tenant.
- Nonspousal joint tenancies can be treated differently and may subject the estate to additional costs in the form of unnecessary litigation. The general rule is that joint tenancy assets pass directly to the surviving tenant, but if it can be proved that the decedent actually intended for the joint asset to pass to their estate and not the surviving joint tenant reds flag would be raised likely leading to needless litigation and cost.
- Do not assume that the law applicable to joint real estate property and joint bank accounts are the same. Generally, rules surrounding joint bank accounts and what happens after death are determined by the contract between the bank and the depositor. This means that if in the agreement between the bank and one of the account holders (think one of the joint asset holders), the account holder can unilaterally pledge the interests of all the other depositors resulting in that decision holding weight passed the original joint tenant-account holder’s death.
Generally, joint tenancy is a safe and common way to avoid probate and real property upon the death of one of the joint tenants. It is important to note that if any of the joint tenants owes a debt of any kind, credit card, liens on property, etc, they’re assets, while living, are still subject to claim by creditors in order to resolve the debt when alive. The specifics of a will and/or trust will determine what kind of access the creditors have after the death of one, or all, of the joint tenants. Hence the importance of having an ironclad trust in place. You can learn more about joint tenancy assets, property, and the probate process by checking out the article, Illinois Probate: Does All Property Need to Go Through Probate?