Key point: Joint ownership comes in several forms. For example, suppose you and a sibling each own an undivided one-half interest in a home. You are considered to be “tenants in common” with each party owning a one-half interest. If you die first, the property is bequeathed to whomever you choose. In contrast, property owned by joint tenants with a right of survivorship automatically passes to the survivor when the other owner dies.

The pros and cons: Joint tenancies have advantages and disadvantages. On the plus side, property held in joint tenancy may be transferred smoothly to the survivor. The probate process is avoided, and the survivor generally receives the property without delay. In addition, estate administration expenses may be reduced.

For instance, an elderly person may decide to place funds in a joint account with an adult child. Result: The child can make withdrawals for the parent when sickness or other conditions affect the parent’s ability to function.

However, joint ownership may also have adverse effects. For instance, if you own property jointly with a relative, it may be subject to your relative’s creditors.

Federal estate-tax consequences: If you own property with your spouse as joint tenants with rights of survivorship, one half of its value is presumed to be included in the estate of the first to die—no matter who paid for it. Initially, the property is exempt from federal estate tax under the unlimited marital deduction. When the survivor dies, however, the entire value of the property is included in his or her estate.

Example 1: Jack buys a $400,000 residence and names himself and his spouse, Jill, as joint tenants. When Jack dies, the house is worth $600,000. Although $300,000 (one-half of $600,000) is included in his gross estate, it is sheltered by the marital deduction. Jill dies three years later when the home is worth $650,000. Result: The full $650,000 is included in her gross estate (but all or part may be sheltered from federal tax by the federal estate-tax exemption).

For nonspousal joint tenancies, the full value of the property is included in the taxable estate of the first one to die. If the survivor contributed toward the purchase of the property, that amount is reduced proportionately. In any event, the full value not included in the estate of the first tenant to die is included in the survivor’s estate.

Example 2: Betty buys a home and names her granddaughter, Veronica, as a joint owner. Assuming Betty dies before Veronica when the home is worth $500,000, the entire $500,000 is included in Betty’s estate. But if Veronica had paid half of the purchase price, only $250,000 (half of $500,000) would be included in Betty’s estate. Similarly, if joint tenants receive property as a gift or inheritance, only a proportionate interest is included in the estate of the first tenant to die.

Estate planning must also take applicable state laws into account. It is recommended that you consult with an expert in both federal and state laws.