While the living trust is the most flexible device used to avoid the costs and delays of probate, several other devices are available. These can be used in conjunction with the living trust or, if your property holdings are simple, instead of the living trust. The most important of these devises is the “joint tenancy”. “Totten trusts”, “payable-on-death” bank accounts, “transfer-on-death” security designations and life insurance should also be considered as ways of avoiding probate.
Joint tenancy is discussed below.
What is a “joint tenancy”?
A joint tenancy is a form of shared ownership, with the key feature being the “right of survivorship”. This means that while the joint tenants equally share ownership during their lifetimes, when one joint tenant dies, his or her interest is extinguished, leaving the surviving joint tenant(s) with sole ownership.
In some states, the survivorship feature attaches automatically when title was held as “joint tenants”. But in many states today the survivorship feature does not attach to a joint tenancy unless it is expressly stated in the instrument. In these states, for the surviving joint tenant to take the property the conveyance must add some special language such as “as joint tenants with right of survivorship”. Simply saying “as joint tenants” will not be sufficient.
Can a will “break” a joint tenancy?
“My dad left a will which left all of his property (including his home) to me and my brother. But a few years before he died he had placed his home in joint tenancy with my sister. Who gets the home?”
Your sister gets the home – unless you and your brother can prove that the joint tenancy was established “for convenience only”. This would be very hard to prove, particularly when the asset transferred is real estate. Therefore, because the right of survivorship attaches to joint tenancy property, your dad’s interest in the home probably passes automatically to your sister on his death. The right of the surviving joint tenant is superior to that of heirs of the deceased joint tenant.
What is a joint tenancy “for convenience only”?
“A few years ago after my father suffered a heart attack, he put my sister’s name on his bank account, making her a joint tenant with him. He did this so that she could have access to his funds to pay his bills if he became incapacitated. Dad recently died. His will leaves all his property to his three children equally. My sister claims she should take all of the funds in the bank account and only the rest of Dad’s property should be divided among us. I don’t think this is what Dad wanted. Who will get the funds in the bank account?”
This is a tough question. In some states the courts will simply go by how title is held, so they would give the funds to your sister as the surviving joint tenant. But in many states, especially when dealing with joint bank accounts, the courts will look behind the title. If you can prove that your dad did not want to convey ownership to your sister but set up the joint account simply “for convenience only”, you have a good chance of having the bank account pass under the terms of your dad’s will to all three of his children. You should see a lawyer experienced in estate planning to discuss this.
Should I put my property in joint tenancy with my children?
“My husband recently died, and I am now the sole owner of the family home, which is worth a good deal. When I die, I want the home to go to my three children – and I don’t want to have to pay probate fees. A friend suggested that I should simply transfer the home to myself and three children as joint tenants with survivorship rights. Is this a good idea?”
While the creation of a joint tenancy will work to keep the property out of your probate estate, you might prefer a living trust, for several reasons.
First, the living trust will provide you with much greater control and flexibility. If you create a joint tenancy, you are giving your children a current irrevocable interest in the home. If you later change your mind and want to leave all or part of your home to others or if you want to exclude one of your children from taking, you will not be able to do so.
Second, if you decide to sell your home, all of your children will have to consent, and on its sale they would be legally entitled to share in the sale proceeds. Furthermore, by creating this joint tenancy you might owe a federal gift tax, because your creation of the joint tenancy will be considered a taxable gift.
Lastly, creating this joint tenancy might trigger a reassessment of the value of your home. You don’t want to wind up paying more in property taxes simply because you created a joint tenancy with you children.