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What are the advantages and disadvantages of holding title to your property, such as your personal residence, in joint tenancy versus placing property in a living trust? That’s a very common question. The form of title that is best for you depends on your life situation and your estate planning goals.
Joint Tenancy
A joint tenancy can involve two or more people. When one owner dies, the property transfers to the surviving joint tenants and eventually to the last surviving owner -- if there are several -- regardless of a will or trust in place. This transfer is known as the “right of survivorship” and doesn’t require a will. Couples use joint tenancy most often in estate planning to ensure that their property goes to the surviving spouse without having to go through probate. However, the property will be subject to probate when the surviving spouse dies.
Living Trust
A trust is a legal arrangement that provides another way to manage your house or property by assigning a trustee who owns and manages it in the trust. A trustee ensures that the beneficiaries receive the benefits from the management of the property. The estate owner assigns trustees and beneficiaries and provides a detailed description of benefits and property included in the trust. A bank can manage a trust for the benefit of children, and if the estate owner dies unexpectedly, the arrangements made in the trust ensure that the children are supported financially.
What Problems Can Joint Ownership Present?
In addition to the fact that joint ownership only delays probate until the second owner's death, the arrangement may also present the following issues:
If you are the first to die, you will have lost control over the asset (neither your will nor trust controls what happens to the property).
A remarriage may result in your children being disinherited, not willfully, but due to poor planning.
Adult children may lose jointly owned property to debts or divorce (your hard earned property could end up in the hands of an ex- son or daughter-in-law with a good divorce attorney).
Your co-owner could transfer their shares to someone else without your knowledge or approval.
If one of the owners is in a high-risk profession, like a medical doctor, then all the property is subject to the high risk, even the portion owned by the non-doctor owner.
There are gift tax and estate tax consequences that could be extremely detrimental, especially if your estate is larger.
It is very difficult to remove a co-owner from an asset's title without their complete cooperation.
Adding a child or a non-spouse to the title of property purchased by you could trigger a gift tax liability.
An Option to Joint Ownership: a Living Trust
A living trust is a revocable trust that is set up during your life. Most of your assets are then titled in the name of the living trust. You maintain complete control of the trust during your life and can add or remove assets. Upon your death, the assets in the trust are distributed by your named trustee (usually your spouse) to your named beneficiaries, without probate.
A living trust maintains your family's financial privacy, provides an easier and more efficient administration of your estate, and can protect dependents with special needs. A living trust is easy to set up and maintain and can be changed or canceled at any time.
A living trust is usually drafted to include the following additional benefits:
A credit by-pass trust that allows both you and your spouse to use your federal estate tax exemption.
Delay of estate taxes until the surviving spouse dies.
Gives the first spouse to die control over who will eventually receive the assets in their trust.
Prevents court control of assets at physical or mental incapacity.
An asset protection trust that keeps assets in a trust until the beneficiaries reach the age at which you want them to inherit.
If you would like to learn more, please contact me at joe@joebartonlaw.com or 415-235-9162 to schedule a free consultation. I know people have demanding schedules. That is why I offer evening and weekend appointments.