When people that do not have a great deal of in-depth knowledge discuss estate planning, they sometimes circulate information that is incomplete. This can enter the picture when it comes to so-called “simple” estate planning solutions. In this blog post, we will look at a few of them in an effort to raise awareness so that you understand the potential perils that exist.
Joint Tenancy With Right of Survivorship
If you maintain direct possession of your home throughout your life, and you pass it along to a loved one through the terms of a last will, the transfer would not take place immediately. The will would be admitted to probate, and the court would supervise the administration of the estate.
People that are named in the will would not receive their inheritances until the estate was closed by the court. It will typically take somewhere in the vicinity of nine months to probate an estate. Most people would prefer to take steps to get assets into the hands of their loved ones in a more timely manner.
Getting back to the transfer of a home, let’s say that you own a piece of residential property, and you want to leave it to your son. You hear about probate, and you would like to take steps to avoid this unwieldy process. It would be possible to make your son a co-owner of the property while you are still living. This is called joint tenancy with right of survivorship.
If you were to go this route, your son would indeed inherit the property after your passing, and the probate court would not be involved. This can sound like the ideal solution, but you have to think long and hard before you decide that joint tenancy is the right choice for you.
Using our example, as soon as you add your son to the title or deed of your home, he would have a 50 percent ownership share. If he was to run into trouble with the Internal Revenue Service or become the target of a lawsuit, his interest in the property could be attached. This could force you to sell the home and live out your days elsewhere.
You would also have to gain the cooperation of your son if you ever wanted to sell the home.
There are other options that you can utilize to transfer ownership of the home outside of the probate process. One potential course of action would be to convey the property into a revocable living trust. The trustee would follow your instructions and transfer assets that you have placed into the trust to the beneficiary or beneficiaries. These transfers would not be subject to the probate process.
Payable on Death Accounts
When you open up an account at a bank or a brokerage, you may be offered a payable on death or transfer on death option. The way that it works is you add a beneficiary to the account, and this person has no access to the funds while you are alive.
After you are gone, the beneficiary would obtain a death certificate and present it to the financial institution. At that time, the beneficiary would assume ownership of assets that remain in the account, and probate would not be a factor.
This can sound like another very straightforward and effective estate planning idea. Some people will establish a transfer on death account and tell the beneficiary to distribute the assets in a particular way to multiple different family members. The person in question may well follow the instructions, but they would not be legally required to do so.
To prevent the above, you could potentially add multiple beneficiaries. However, institutions typically require depositors to allow for equal distributions to the beneficiaries. This arrangement may not be consistent with your wishes. At the end of the day, there is no reason to let the rules of a bank dictate the way you pass along your legacy.
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