May 2014< Back to View All Publications
Many people try to avoid probate by re-titling their assets jointly with another person. This is the so-called “poor man’s estate plan.” Holding assets in joint tenancy can work well in some situations, but you need to be aware of the risks involved.
One of the most common goals in estate planning is to avoid probate. One way people try to avoid probate is by holding their assets jointly with another person. This is very common for a married couple who may own their real property as “joint tenants” and who also own all financial accounts jointly. When one spouse dies, the jointly held property automatically avoids probate and passes to the survivor. However, problems often arise in situations where the survivor adds someone else as a joint tenant to that property.
Let’s use an example: Bob and Mary are married and hold all their property jointly. They have three adult children. When Bob passes away, all their property automatically passes to Mary. A few years later Mary gets sick and decides to add their oldest child, Jane, to the deed on the house and all bank accounts that way Jane can “take care of things” if Mary gets sicker or dies. Mary also adds Jane as joint owner so the property will avoid probate. Mary trusts that Jane will “do the right thing” when Mary dies and share all the property with her two brothers. How could this plan go wrong?
Lawsuit risk – If Jane gets sued, her mother’s assets could be taken by Jane’s creditors just because Jane’s name is also on those assets. This could possibly wipe out the entire estate while Mary is still alive!
Death of joint owner – If Jane dies before her mother; her mother’s estate would still have to go through probate.
Loss of control – Each owner has immediate rights to the jointly owned assets. This means Jane could wipe out her mother’s bank accounts while her mother was still alive by withdrawing the entire account. Jane has a legal right to withdraw her mother’s assets and take them for herself.
Inadvertently disinheriting other beneficiaries – All too often when a parent names one child as a joint owner and instructs them to share with the other kids, it doesn’t happen. In our example, Jane would have full legal right to take all the assets upon her mother’s death and keep them for herself. She would not be legally required to share with her two brothers even though her mother asked her to do so.
The good news is that creating a revocable trust can achieve your goal of avoiding probate while at the same time avoiding all of these risks of joint tenancy. A revocable trust can help you remain in control of your assets for the rest of your life and allow you to set the terms for how your assets pass to your beneficiaries upon your death.
Please contact me with any questions you may have or if you’d like to set up an appointment to discuss your individual estate planning goals.
Cordially, Kristin Tyler