Estate Planning and Property Ownership
The term, “settling an estate” is a term used to refer to the process of gathering up all the decedent’s assets and paying off the last bills, taxes and creditors, and then transferring the remaining assets to heirs and beneficiaries.
A Living Trust is a legal document that states who oversees trust assets (i.e., trustee and its successor after the original trustee’s death). Probate is the court-supervised process which decides who gets what and when. It is a public, long and expensive process. There are two types of fees associated with the probate in the state of California – fees for ordinary legal services (up to 4% of gross assets) and fees for services that the court considers extraordinary legal and other services (selling real estate, defending against a will contest brought by a disgruntled heir, or filling a lawsuit against person who has an asset that should be brought back into the estate, etc.). One of the primary purposes of forming a living trust is to avoid probate.
A Living Trust is less expensive and more time efficient. It is a private confidential document which is not open to public scrutiny the way a will is. A Living Trust also can reduce your taxes, depending on how it is written and the laws in your state.
A listing of your assets is important part of the estate planning process. Before we go on to consider your assets as part of your estate plan, you must know what those assets are. What assets do you own? How do you own them? Different ownership forms can be easier or more difficult to leave as part of an estate.
Joint tenants (JT), or joint tenants with rights of survivorship (JTWROS), are the forms of ownership most used by married couples. In general, this means that both parties own 100% of the property and there is no divided interest as there is with tenants in common (TIC). The “rights of survivorship” clause means that the property passes directly to the other party outside of the will. This is an excellent benefit to ensure that the property does not go through probate. For example, if John and his wife Mary hold their home as “joint tenants with right of survivorship”, if John dies tomorrow, his wife will own their home outright. There is an important point to keep in mind here – the right of survivorship takes precedence over property bequeathed in a will. John can’t leave his sister anything that is already jointly owned by him and Mary, or him and anyone else, for that matter. Once on deed, the person needs to agree to be removed or sell the property. Typically putting your children’s names on the title to your house or any other real property that you own, is not a good idea. When you put your house in your child’s name, you now subject your house to their financial burdens and risks in life. For example: if your child gets a divorce, their ex can claim that he or she has an ownership interest in the portion of your house in your daughter’s name; if your child files for bankruptcy, the bankruptcy trustee can attempt to attach your house as asset that can be used – that is, sold – to pay off your son’s creditors; IRS and creditors can place lien against your house.
I have seen numerous situations where individuals have co-owned their houses with their children or family members to save on the costs and nuisance of probate, only to lose all or portions of their properties to their family members’ spouses and creditors.
As a Certified Estate Planner, to avoid ending up as a cautionary tale of what not to do, I usually advise my clients to use a Living Trust for the after-death transfer of their assets to their beneficiaries.
Typically, if you live in the state of California and you own real estate of any value, whether $10,000 or $10 million, have accumulated $150,000 or more in assets and/or have a minor child – you probably need a Living Trust.
No better way to get the estate planning process started than to get it started. Please ask me how.