Joint ownership is the most popular form of ownership for a married couple's real estate and bank accounts. With joint property, when one joint owner dies, property owned in joint ownership automatically passes to the surviving joint owner(s).

In this way, jointly-owned property passes outside of a will and avoids the expense of probate. Because it avoids probate, many "common sense" advisors recommend joint ownership. But this automatic inheritance outside of wills can create problems.

As you will see here, using joint ownership as an ownership form can be a big mistake. Consider the following:

Joint ownership can ruin your estate plan

Joint ownership threatens to ruin your estate plan because any property you own jointly will pass automatically by right of survivorship to the surviving joint owner(s). In the eyes of the law, this automatic transfer takes effect the instant you die, before any will or living trust can dispose of your property.

In this way, your will or living trust will have no effect on jointly-held property.

If you designated certain beneficiaries in a will or trust to receive your share of jointly held property, they will be "disinherited" and the surviving joint owner(s) will take it. This avoidable tragedy occurs everyday in this country because people do not realize the dangers of joint ownership and because their advisors are not giving them adequate information.

Consider these stories:

1. William, a successful physician in his late sixties, marries for the second time. Shortly after the wedding, he puts all of his significant property — his main home, his winter vacation condominium and his stock portfolio — into joint ownership with his new wife. Within six months, William dies. The home, the condo, and the stocks all go to William's new wife. His three children and eight grandchildren inherit virtually nothing, even though William had made ample provisions for them in his will.

2. Susan's will bequeathed her property equally to her son and daughter. Because her son lives near her and he pays her bills, Susan put her house, her safe deposit box and her bank account in joint ownership with him. When she dies, Susan's son will get all of the money in the bank account and deposit box, as well as the house, regardless of the will provisions. Unless the son is extremely generous, the daughter will get close to nothing. Do you want to rely on your children's generosity to carry out your estate plan?

3. Assume the same situation as in No. 2, but add to the facts that the son has serious creditor problems. Overdue on $15,000 in credit card debts and a defaulted loan, the son's creditors can come after the bank account, the safe deposit box contents, and likely the house the moment Susan dies. The only real beneficiaries of Susan's estate may be banks and finance companies.

4. Cecilia, a single mother in her thirties, is trying to build a college fund for her 8-year-old daughter, Debbie. Cecilia has invested some of her excess income to buy old residential multifamily homes, which she and her partner fix up and rent to owners. While her relationship with her partner has been strained at times, Cecilia nevertheless takes title to the investment properties in joint ownership with her partner without realizing that if she dies before they resell the properties, her partner will take them all and leave nothing for Debbie.

Why do well-intentioned people get stuck in these predicaments? Because they do not know any better, and their advisors are not doing their jobs.

Sometimes, owners may not even realize what type of ownership they have chosen. In other cases, people consciously decide to use joint ownership because they know it will avoid probate. Avoidance of probate is never a reason to use joint ownership.

Never use joint ownership to avoid probate — Use a living trust

Assets titled in joint ownership, and assets titled in a living trust both avoid probate. As described in a previous article, your interest in these assets will pass outside the probate process at death by utilizing a living trust. Thus, if your goal is to avoid probate, use a living trust rather than joint ownership. You will get many more benefits without any of joint ownership's pitfalls.