Joint tenancy is a way of avoiding probate simply by putting the words "joint tenancy" in the title of an asset.  But joint tenancy can have drawbacks, as explained on this web page.

What is the right of survivorship? When a joint tenant dies, his or her interest in the asset vests in the surviving joint tenant or joint tenants. In other words, if two people own real estate in joint tenancy, and one of them dies, the surviving joint tenant then owns 100 percent of the property. 

Does a will or trust have any control over joint tenancy? If property is owned in joint tenancy, the surviving joint tenant will receive the deceased joint tenant's interest in the property, regardless of what that person's will or trust says about the property. An exception would be if both joint tenants died simultaneously, in which case their wills would control their interest in the asset. For more information about wills, see the Wills page or the Do-It-Yourself Wills page.  For information about another way of owning property, see the Tenancy in Common page.

What are the capital gains problems with joint tenancy? Joint tenancy is not recommended for married couples who own assets that can increase in value, such as a residence, because the surviving joint tenant will not receive a "step-up" in cost basis to fair market value at the date of death of the other joint tenant.

Cost basis is used to determine capital gains. For many homeowners, the cost basis is the price they paid for their home, plus any capital improvements that have been made. The cost basis is subtracted from the selling price to determine the capital gains. When a married couple owns an appreciated asset as community property, the surviving spouse will get a step-up in the cost basis to the fair market value at the date of death of the other spouse. (The amount of the step-up, however, is limited to $4.3 million for the surviving spouse and $1.3 million for others.) In other words, if the surviving spouse has to sell the residence, he or she is unlikely to have to pay any capital gains. But if the residence is held in joint tenancy, it is more likely that some capital gains tax may be due because only half of the property receives a new basis. The federal tax reform bill passed in 1997 allows the surviving spouse a capital gains exclusion of $250,000, but for some California residents, even this amount may not be enough to prevent payment of capital gains tax when a residence is sold.

On the other hand, owning the property as "community property" will give the surviving spouse a 100 percent step-up in basis. However, this will change in 2010, if the current tax bill remains in effect. See the tax repeal page for further information.

Advantages of joint tenancy:
1. Joint tenancy avoids probate. See Probate Page or the Avoid Probate Page for further information.
2. Title to real property can be cleared after a death by filing an affidavit of death of joint tenant.  The surviving joint tenant then owns the property with no further proceedings or paperwork required.

Disadvantages of joint tenancy:
1. The step-up in basis is limited for married couples who own property in joint tenancy.
2. The asset will usually be probated after the death of the surviving joint tenant unless it is put into another joint tenancy or a trust.
3. The tax planning advantages used in a living trust, such as the creation of an exemption trust, are not possible for joint tenancy property. See the Federal Estate Tax page for information about estate taxes.

Community property with right of survivorship. A similar form of ownership is called "community property with right of survivorship," which allows the property to be transferred to the surviving joint tenant without going through probate. This form of ownership allows a 100 percent step-up in basis.