Learn how shared property ownership may occasionally help you avoid probate.
Several types of joint ownership make it straightforward to avoid probate when the original owner dies. (For more information on probate and its drawbacks, read the article Why Avoid Probate?)
Indeed, many couples come to the conclusion that maintaining title to their primary assets as joint owners is all the estate planning they need to do, at least while they are young. To avoid probate by accepting title as joint owners with someone else, you declare how you wish to hold title on the instrument that proves your ownership (a real estate deed, for example). Typically, no extra papers are required.
Here are some examples of how you may avoid probate by using joint ownership.
Tenancy in Common with Right of Survivorship
When one owner dies, property held under joint tenancy (also known as “joint tenancy with right of survivorship” or “JTWROS”) immediately goes to the remaining owner(s) without probate. When couples (married or not) purchase real estate, automobiles, bank accounts, stocks, or other significant property jointly, joint tenancy generally works effectively. Setting up a joint tenancy is simple and free of charge.
A separate written agreement is required in Texas. In Texas, all joint tenants must execute an agreement to establish a joint tenancy with right of survivorship. If you wish to open a shared tenancy bank account, for example, mentioning your arrangement on the bank’s signature card isn’t adequate. A bank or real estate agency should be able to provide you with a fill-in-the-blanks form.
Property held as joint tenants is exempt from probate.
Learn how to obtain joint ownership of property. Joint tenancy, on the other hand, is not necessarily a smart idea. Joint tenancy is often a bad estate planning option when an elderly person is enticed to place solely owned property into joint tenancy with someone else in order to avoid probate. Adding another owner in this manner may result in various complications:
You’re transferring a portion of the property’s ownership. You cannot revoke the new owner’s rights. The new owner, for example, may sell or mortgage his or her portion, or lose it in a lawsuit or divorce.
You may be required to submit a gift tax return. (For further information, visit the Estate and Gift Tax FAQ.)
It may cause disagreements after your death. Many senior citizens make the mistake of adding someone as a joint tenant to a bank account for “convenience.” They’d want someone to assist them by depositing cheques and paying bills. However, if the original owner dies, the co-owner may argue that as a living joint tenant, he or she is entitled to the cash remaining in the account. It’s too late to question whether that’s what the dead individual really wanted in certain cases. Use a power of attorney to grant someone the ability to spend your money on your behalf. (For further information, see the article Financial Powers of Attorney: Do You Need One?)
Rent by the Entirety
In certain jurisdictions, married spouses typically claim title in “tenancy by the full” rather than joint tenancy. It is similar to joint tenancy in that it includes the right of survivorship, but it may only be utilized by married couples (or in a few states, by same-sex partners who have registered with the state). Both avoid probate in the exact same manner.
Community Property with Survivorship Rights
If you are married (or have registered with the state as domestic partners in California) and reside or own property in Alaska, Arizona, California, Nevada, or Wisconsin, you have another option for co-owning property with your spouse: community property with the right of survivorship. When one spouse dies while holding title to property in this manner, the other immediately acquires the asset. Transferring title to the survivor is straightforward and does not need legal actions.
How These Property Types Avoid Probate Court
When one joint owner dies under the sorts of joint ownership mentioned above, the new owner normally just has to fill out a simple form and deliver it, together with a death certificate, to the custodian of ownership records: a bank, state motor vehicle department, or county real estate records office. See How Joint Owners Can Transfer Survivorship Property After Death for additional information.
How Do You Maintain Title?
Not sure how you got the title? You’re not alone yourself. Most individuals don’t give much thought to how their names appear on title papers. Fortunately, a quick review at those documents—for example, the deed to your house—will typically reveal how you and the other co-owner now hold title.