Last week I was asked by another client how to avoid probate. I explained what probate is. Then, we discussed the client’s assets and how certain trusts could be helpful in achieving her planning goals. I suggested she may want to incorporate some other simple steps into her plan:
Joint Bank Account. If you own property jointly with someone else as joint tenants “with rights of survivorship”, then at your death your interest in that property will automatically pass to the surviving owner. Your joint interest will not pass according to the terms of your will or trust or through probate. However, if you own property with others not as joint tenants with rights of survivorship, then you are a “tenant in common” with them and your proportionate share of the property will pass through probate. For bank and financial accounts, the bank documents which established the account determine if it is jointly owned. If the bank documents state that the account is jointly owned “with rights of survivorship”, then the surviving joint owner will automatically become the sole owner of the funds at your death. However, if the account documents do not state that there is a right of survivorship and if your name is the primary name on the account, your estate may have to be probated at your death and ownership of the funds will pass to your heirs under state law or as you direct in your will.
Possible disadvantages of joint ownership: The other joint owner can freely withdraw any jointly-owned financial account funds, leaving you without funds for self-support. Jointly-owned assets may become subject to the judgments, lawsuits and bankruptcy of any joint owner. Full ownership of the assets will pass to the other joint owner at your death, without any legal requirement that s/he share them with other children or family members.
An alternative to joint ownership may be a “payable on death” designation. You may have the bank or financial institution designate your account as “payable on death” to one or more individuals. This acts like a beneficiary designation on life insurance, and the financial institution will pay the balance of that account to those persons at your death without a probate. However, they will not be owners of the account while you are living.
Deeds to Real Estate. Every person who owns a residence or other real property must be aware of the form of ownership. If the deed states that property is owned by two persons as “joint tenants with rights of survivorship,” both owners must sign any documents to deed or mortgage the property and the property will be owned outright by the surviving co-owner if one owner dies. Without the “joint tenants with rights of survivorship” wording, either owner can dispose of his/her portion without the signature of the other (but not homestead property), and the surviving owner will only continue to own her original share. Also, a deed may convey land to another and retain for the original owner the right to use and occupy it during that owner’s lifetime (a “life estate” deed). The land will pass directly to the named recipient at the original owner’s death and will not pass through will or probate at the original death; the property is not subject to Medicaid payback claim at the original owner’s death, but both owners must sign in order to sell or mortgage the property. Therefore, joint ownership and life estate deeds may be used in specific circumstances to direct ownership of land and avoid probate.
Customized Beneficiary Designations. Life insurance policies, retirement plans, and annuities will pass to the person(s) designated as beneficiary of those benefits, not under the terms of your will or trust. If you wish for such benefits to pass to a trust or under circumstances similar to your will, then you must carefully draft the beneficiary designation. It is quite appropriate to have such a description drafted and attached to your policy as an attachment. This will specifically instruct the insurance company or retirement plan administrator how to disburse the benefits at your death, so that these benefits can be managed in keeping with the specific needs of each beneficiary while avoiding unintended tax consequences. Such customized designations are particularly helpful where one of the beneficiaries is disabled and you wish to direct that person’s share to a “special needs trust” for their care.
For help with crafting an estate plan that will accomplish your planning goals, contact us online or call us today at 601-987-3000.