You sometimes hear bits and pieces of estate planning “advice” that is passed along by people that have good intentions, but they may not see the complete picture. This dynamic will often apply to probate and probate avoidance strategies.
If you use a will to express your final wishes with regard to postmortem asset transfers, you would name an executor to act as the administrator. The will would be admitted to probate after your passing, and the court would supervise during the administration process.
Creditors are notified during probate, and they are given a good bit of time to come forward seeking satisfaction. The court examines the will to determine its validity, and the executor will identify and inventory the assets and prepare them for distribution.
All this takes time, and inheritances are not distributed until the estate has been probated and closed by the court.
How much time? In most jurisdictions, it will take between eight and 18 months for probate to run its course. The exact duration will depend on the complexity of the case in question.
Many expenses accumulate during probate, and this is another negative. Plus, probate records are available to the general public, so there is a loss of privacy.
Joint Tenancy and Probate Avoidance
Now that we have set the stage appropriately, we can look at joint tenancy. Because of the drawbacks, people look for ways to arrange for asset transfers that would not be subject to the probate process.
As we stated in the opening, there are some so-called “simple solutions” that are passed around by people that have an incomplete understanding, and one of them is joint tenancy. Simply put, this is the condition of co-ownership of property.
Real estate can be held in joint tenancy, and a bank or brokerage account could also be concurrently owned by multiple individuals.
Let’s say that you own a home outright, and you want to leave it to your daughter after you pass away. You can change the title to establish a joint tenancy with your daughter, and she would become a co-owner of the property.
Joint tenancy comes with right of survivorship, so your daughter would inherit your share after your death. The transfer would not be subject to probate, so the hassles would be avoided.
This approach could go according to plan, but there are no guarantees, because your daughter would own half of the property immediately after the paperwork is filed. If she was to run into trouble with the IRS, or she was the target of a lawsuit, her portion of the property would be unprotected.
Another potential problem is the fact that you would need your daughter’s cooperation if you ever want to sell the entire property. She would also have the right to sell her interest in the property to another party, and this would break up the joint tenancy. The new arrangement would be a tenancy in common.
Even if everything goes smoothly after your passing, the probate process would be looming for your daughter after she becomes the sole owner of the property.
There Are More Effective Options
Avoiding probate is not a bad thing at all, but there are better ways to go about it. For example, if you were to convey your home into a living trust, the transfer to the beneficiary would not be subject probate.
However, you would not surrender any ownership rights to the home or anything else that you convey into the trust while you are living. Probate avoidance is one benefit that living trusts provide, but there are a number of others that we will cover in another post.
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Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021.
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