They say that a little bit of information is a dangerous thing, and this often enters the picture when it comes to estate planning. People hear about simple approaches that sound like they would be effective on the surface, and but they don’t fully understand the potential consequences.
In this post, we will look at some of these simple solutions that can get quite complicated, but we will start with a bit of background information.
Probate Process
When a will is used to direct postmortem asset transfers, the executor that is named in the document acts as the estate administrator. The executor is required to admit the will to probate, and the court provides supervision during the administration phase.
Probate will take eight or nine months at minimum in most jurisdictions, and it can take considerably longer in some instances. No inheritances are distributed while probate is underway, so this is a significant negative.
Costs that accumulate during probate reduce the value of the estate before it is transferred to the heirs, and it is a public proceeding. Interested parties can access probate records to pry into the details, and this information can potentially cause hard feelings.
The transfer methods that we are going to examine facilitate asset transfers outside of probate, and that’s the reason why a lot of people are interested in them.
Joint Tenancy
Joint tenancy is a form of concurrent ownership of property. In order for joint tenancy to exist, there must be “four unities.” These unities are time, possession, interest, and title.
Unity of time means that they must obtain their interest in the property at the same time. Interest unity is a way of saying that they must have equal ownership interests.
Unity of title refers to the individual owners being listed on the same title. The possession unity is a way to describe the right of the joint tenants to possess and enjoy the property.
Married couples often buy homes together, and this creates the condition of joint tenancy. It is also possible to file the appropriate paperwork to establish a joint tenancy with another party when you own property.
The latter scenario is one of the so-called “simple solutions.” Joint tenancy comes with right of survivorship, so the surviving joint tenant will inherit the entirety of the property after the death of one joint tenant. This transfer would not be subject probate.
What’s wrong with that arrangement? The problem is the fact that the newly added joint tenant would immediately own half of the property. If they are on the wrong side of a lawsuit judgment, their portion of the property would be available to the litigant.
Another drawback is the fact that the property cannot be sold unless it is done with the cooperation of all of the joint tenants. As a result, if you use joint tenancy for estate planning purposes and you want to sell the property, you need the other joint tenant’s approval.
Payable on Death Accounts
If you open an account at a bank or brokerage, you can add a beneficiary, and this is called a payable on death or transfer on death account. After your passing, the beneficiary would present the death certificate to the institution, and they would assume ownership of the account.
There are people that tell the beneficiary to distribute the funds among multiple individuals when the time comes. Since there is no way to legally enforce the verbal instructions, in many cases, the beneficiary has different ideas.
This is also a very limited approach, and there are other facets to consider, so it is a partial solution at best.
Don’t Take Chances!
There is nothing wrong with probate avoidance, but there is a right and a wrong way to go about it. A living trust is the ideal probate avoidance tool, and there are other significant benefits.
When you choose our firm, we will gain an understanding of your situation and your legacy goals and make the appropriate recommendations. At the conclusion of the process, you will come away with a custom crafted plan that is ideal for you and your family.
You can schedule a consultation appointment right now if you call us at 802-879-7133, and you can fill out our contact form if you would like to send us a message.
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