If you’re considering estate planning and are interested in ensuring that some of your most important assets remain free from the probate process, you’re not alone. The avoidance of probate is one of the main reasons why comprehensive estate planning is growing in popularity. These days, estate planning tools like living trusts are gaining greater attention as people look for options that enable them to more easily transfer ownership of their assets to loved ones when they die. As useful as trusts can be, however, there is another tool that many people often neglect when they’re looking for ways to avoid probate: joint tenancy.
Why Avoid Probate Anyway?
As you probably already know, probate is an important legal process in the United States. In many instances, it provides the most orderly and protected way to settle an estate when someone dies. It can help to ensure the validity of the will, provide an orderly identification of assets and debts, ensure that those debts are properly paid, and then distribute property to the decedent’s heirs. Without probate, many estates would end up being thrown into chaos – and the courts would rapidly be overwhelmed with lawsuits between family members and others battling for a piece of every decedent’s estate.
With the court-supervised probate process, each state has its own uniform standards for settling each estate that contains assets subject to probate. Essentially, that means that probate is usually required for any assets that are titled in a way that provides no automatic means for transferring ownership when the original owner dies. When assets like that exist in your estate, that estate may need to go through probate for final settlement. And while it is beneficial that we have a process for settling estates in this manner, there are many reasons why people want to avoid that process when they can.
First of all, probate is time-consuming. The process of identifying and appraising assets, locating creditors and processing their claims, and distributing assets to heirs can take anywhere from a few months to a year or more. Meanwhile, heirs have to wait for their inheritance – something that can cause hardship for a decedent’s family, especially when those loved ones have relied on the deceased’s income and assets for their ongoing support.
In addition, probate can be costly in terms of actual money expended to settle the estate. There are attorney’s fees and executor costs, court fees, and the costs associated with hiring appraisers, tax professionals, and others who might be needed to provide a full accounting of assets. Added together, these costs can put quite a dent in the size of the estate that will ultimately be released to the heirs.
What is Joint Tenancy?
When it comes to keeping assets out of probate, tools like joint tenancy can be invaluable. At its core, joint tenancy is nothing more than a particular kind of ownership, in which the ownership of a piece of property is shared by more than one person. What makes this type of ownership different than business partnerships or other types of shared ownership is that there are no unequal shares. Instead, every one of the joint tenants owns the property in its entirety. The advantages to this type of ownership should be obvious.
If you and another person own the same piece of property using joint tenancy, then each of you has full ownership of that asset. That means that when one of you dies, the ownership automatically and immediately transfers to the surviving joint tenant or tenants. And since ownership transfers without the need for any additional action, that asset does not need to pass through the probate process.
There are some particulars that need to be followed, of course. First, the joint tenancy must be created in a certain way. If you and another person both become joint tenants for an asset, you must do so at the same time and using the same document. That means that you cannot simply add someone to your property as a joint tenant after you take initial ownership. Moreover, none of the tenants can bequeath their ownership to any of their heirs, since there is no share of ownership to pass on.
Joint tenancy is most commonly seen in situations where a person wants to avoid probate, but feels that he doesn’t have sufficient assets to warrant the creation of a trust or a more comprehensive estate plan. By entering into joint tenancy with an heir, property can be passed on without the need for more complex estate planning tools or the probate process. For example, you might explore this option if your assets are limited to your home and a bank account. Both can be set up with these kinds of automatic transfer of ownership provisions.
Disadvantages of Joint Tenancy
Of course, no estate planning tool or strategy is right in every instance. There are disadvantages that could make joint tenancy unworkable in your particular circumstances. After all, joint tenancy cannot be reversed except with the agreement of all of the tenants. Moreover, any falling out between the tenants could lead to difficulties in the management of the assets. Finally, if one of the tenants is sued and the asset becomes vulnerable, the other tenants may see their ownership of the asset at risk as well.
Find Out Whether Joint Tenancy is Right for You!
At Biddinger & Estelle, PC, we can help you assess the potential value of any joint tenancy strategy within the context of your broader estate planning effort. Like any other estate planning tool, this type of ownership strategy is not always the best option for every client. However, if you have assets that could benefit from its use in your estate plan, our experienced attorneys can help you to realize the full benefits joint tenancy can provide. To discover just how beneficial estate planning can be for you, contact us online or call us today at (989) 872-5601.