Ownership of assets into ‘joint tenancy with right of survivorship” is a mechanism of ownership transfer commonly used for estate planning to address such issues as probate fee and tax avoidance.

Recently, this blog site very capably addressed the issues surrounding “joint tenancy” of life insurance in particular (“Life Insurance Joint Tenants” by Corina Weigl May 4, 2018), said issues to include partial loss of ownership and control over the policy, exposure to creditor claims of both owners and (in the likely event one owner survives the other) exposure to change of beneficiary contrary to original intentions.

There is an alternative to joint ownership which is particularly suited to life insurance, that being contingent ownership.

Take the circumstances of a mom in business who has accumulated some wealth, a portion of which she knows she will not spend in her lifetime. She has an adult daughter and a granddaughter who is a minor. The mom purchases a suitable life insurance policy on her daughter’s life which requires payments equivalent to the wealth she wants to transfer to the next 2 generations. She can name her daughter as contingent owner and her granddaughter as beneficiary. This in effect sets up a tax free and probate free transfer of wealth to the next generation(s).

Naming a contingent owner means no loss of ownership during the mom’s lifetime and full control of the policy such as changing contingent owners or beneficiaries in her lifetime.

When the mom passes, the daughter can take over ownership and maintain the policy (most likely fully paid at that point). With the appropriate advice, the daughter can withdraw funds from the policy (as part of some additional planning with the granddaughter) and/or borrow money with the policy as collateral.

Recognizing that the option of contingent ownership is not suited to all circumstances, it is worth considering as an alternative to joint ownership. In any case, as always consult with your pros.

Happy Reading