What Happens When Property Is Owned Jointly and an Owner Dies?

What Happens When Property Is Owned Jointly and an Owner Dies?

When property is owned jointly, the property may pass automatically to the other owner, passing without going through probate, according to a recent article titled “Everything you need to know about jointly owned property and wills” from TBR News Media

Your will only concerns assets in your name alone without a designated beneficiary. Let’s say you have a joint checking account with another person. On your death, the account automatically becomes the property of the surviving owner. This is outside of probate, and any directions in your will won’t apply.

Real estate is most commonly owned jointly, in several different ways and each with its own set of laws.

Joint Tenancy or Joint Tenancy with Rights of Survivorship. On the death of a joint owner, the owner’s share goes to the surviving joint owner. Simple. The main advantage is the avoidance of probate, which can be costly and take months to complete.

Tenancy by the Entirety. This type of joint ownership is only available between spouses and is not used in all states. A local estate planning attorney will be able to tell you if you have this option. As with Joint Tenancy, when the first spouse passes, their interest automatically passes to the surviving spouse outside of probate.

There are additional protections in Tenancy by the Entirety making it an attractive means of ownership. One spouse may not mortgage or sell the property without the consent of the other spouse, and the creditor of one spouse can’t place a lien or enforce a judgment against property held as tenants by the entirety.

Tenancy in Common. This form of ownership has no right of survivorship and each owner’s share of the property passes to their chosen beneficiary upon the owner’s death. Tenants in Common may have unequal interests in the property, and when one owner dies, their beneficiaries will inherit their share and become co-owners with other Tenants.

The Tenant in Common share passes the persons designated according to their will, assuming they have one. This means the decedent’s executor must “probate” the will and file a petition with the court. However, a Tenant in Common may be able to avoid probate if their share of the property is held in trust, in which case the terms of the trust and not their will controls how the property passes at death. In this case, there’s no need for any court involvement.

There may be capital gains consequences when transferring ownership interests during and after life. Such gifts should never be made without speaking with an estate planning attorney. One of the more common errors occurs when the testator fails to account for the different types of ownership and how assets pass through the will. A comprehensive estate plan, created by an experienced estate planning attorney, ensures that both probate and non-probate assets work together.

Reference: TBR News Media (Dec. 27, 2022) “Everything you need to know about jointly owned property and wills”

Can Grandchildren Receive Inheritances?

Can Grandchildren Receive Inheritances?

Wanting to take care of the youngest and most vulnerable members of our families is a loving gesture from grandparents. However, minor children are not legally allowed to own property.  With the right strategies and tools, your estate plan can include grandchildren, says a recent article titled “Elder Care: How to provide for your youngest heirs” from the Longview News-Journal.

If a beneficiary designation on a will, insurance policy or other account lists the name of a minor child, your estate will take longer to settle. A person will need to be named as a guardian of the estate of the minor child, which takes time. The guardian may not be the child’s parent.

The parent of a minor child may not invest and grow any funds, which in some states are required to be deposited in a federally insured account. Periodic reports must be submitted to the court, and audits will need to be done annually. Guardianship requires extensive reporting and any monies spent must be accounted for.

When the child becomes of legal age, usually 18, the entire amount is then distributed to the child. Few children are mature enough at age 18, even though they think they are, to manage large sums of money. Neither the guardian nor the parent nor the court has any say in what happens to the funds after they are transferred to the child.

There are many other ways to transfer assets to a minor child to provide more control over how the money is managed and how and when it is distributed.

One option is to leave it to the child’s parent. This takes out the issue of court involvement but may has a few drawbacks: the parent has full control of the asset, with no obligation for it to be set aside for the child’s needs. If the parents divorce or have debt, the money is not protected.

Many states have Uniform Transfers to Minors Accounts. In Pennsylvania, it is PUTMA, in New York, UTMA and in California, CUTMA. Gifts placed in these accounts are held in custodianship until the child reaches 18 (or 21, depending on state law) and the custodian has a duty to manage the property prudently. Some states have limits on the amount in the accounts, and if the designated custodian passes away before the child reaches legal age, court proceedings may be necessary to name a new custodian. A creditor could file a petition with the court if there is a debt.

For most people, a trust is the best option for placing funds aside for a minor child. The trust can be established during the grandparent’s lifetime or through a testamentary trust after probate of their will is complete. The trust contains directions as to how the money is to be spent: higher education, summer camp, etc. A trustee is named to manage the trust, which may or may not be a parent. If a parent is named trustee, it is important to ensure that they follow the directions of the trust and do not use the property as if it were their own.

A trust allows the assets to be restricted until a child reaches an age of maturity, setting up distributions for a portion of the account at staggered ages, or maintaining the trust with limited distributions throughout their lives. A trust is better to protect the assets from creditors, more so than any other method.

A trust for a grandchild can be designed to anticipate the possibility of the child becoming disabled, in which case government benefits would be at risk in the event of a lump sum payment.

There are many options for leaving money to a minor, depending upon the family’s circumstances. In all cases, a conversation with an experienced estate planning attorney will help to ensure any type of gift is protected and works with the rest of the estate plan.

Reference: Longview News-Journal (Feb. 25, 2022) “Elder Care: How to provide for your youngest heirs”

Update Will at These 12 Times in Your Life

Update Will at These 12 Times in Your Life

Estate planning lawyers hear it all the time—people meaning to update their will, but somehow never getting around to actually getting it done. The only group larger than the ones who mean to “someday,” are the ones who don’t think they ever need to update their documents, says the article “12 Different Times When You Should Update Your Will” from Kiplinger. The problems become abundantly clear when people die, and survivors learn that their will is so out-of-date that it creates a world of problems for a grieving family.

There are some wills that do stand the test of time, but they are far and few between. Families undergo all kinds of changes, and those changes should be reflected in the will. Here are one dozen times in life when wills need to be reviewed:

Welcoming a child to the family. The focus is on naming a guardian and a trustee to oversee their finances. The will should be flexible to accommodate additional children in the future.

Divorce is a possibility. Don’t wait until the divorce is underway to make changes. Do it beforehand. If you die before the divorce is finalized, your spouse will have marital rights to your property. Once you file for divorce, in many states you are not permitted to change your will, until the divorce is finalized. Make no moves here, however, without the advice of your attorney.

Your divorce has been finalized. If you didn’t do it before, update your will now. Don’t neglect updating beneficiaries on life insurance and any other accounts that may have named your ex as a beneficiary.

When your child(ren) marry. You may be able to mitigate the lack of a prenuptial agreement, by creating trusts in your will, so anything you leave your child won’t be considered a marital asset, if his or her marriage goes south.

Your beneficiary has problems with drugs or money. Money left directly to a beneficiary is at risk of being attached by creditors or dissolving into a drug habit. Updating your will to includes trusts that allow a trustee to only distribute funds under optimal circumstances protects your beneficiary and their inheritance.

Named executor or beneficiary dies. Your old will may have a contingency plan for what should happen if a beneficiary or executor dies, but you should probably revisit the plan. If a named executor dies and you don’t update the will, then what happens if the second executor dies?

A young family member grows up. Most people name a parent as their executor, then a spouse or trusted sibling. Two or three decades go by. An adult child may now be ready to take on the task of handling your estate.

New laws go into effect. In recent months, there have been many big changes to the law that impact estate planning, from the SECURE Act to the CARES act. Ask your estate planning attorney every few years, if there have been new laws that are relevant to your estate plan.

An inheritance or a windfall. If you come into a significant amount of money, your tax liability changes. You’ll want to update your will, so you can do efficient tax planning as part of your estate plan.

Can’t find your will? If you can’t find the original will, then you need a new will. Your estate planning attorney will make sure that your new will has language that states revokes all prior wills.

Buying property in another country or moving to another country. Some countries have reciprocity with America. However, transferring property to an heir in one country may be delayed, if the will needs to be probated in another country. Ask your estate planning attorney, if you need wills for each country in which you own property.

Family and friends are enemies. Friends have no rights when it comes to your estate plan. Therefore, if families and friends are fighting, the family member will win. If you suspect that your family may push back to any bequests to friends, consider adding a “No Contest” clause to disinherit family members who try to elbow your friends out of the estate.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”