How Should I Title Assets For My Estate Plan to Work?
“Titling assets properly is the very first step to protect your assets and ensure that they can be passed onto your loved ones efficiently, especially when you share ownership of the assets with another person.”
The way property is titled can mean different probate consequences. Reflector.com’s recent article, “Joint-ownership property titling can avoid costly probate process” discusses the five common methods of joint-ownership property titling.
Joint tenancy. In this situation, two or more persons own equal shares of a property. The owners don’t have to be related or married to each other. When the asset is owned jointly by spouses, the asset is passed onto the surviving spouse at the death of the other spouse. However, when the asset is owned jointly by unmarried people, the entire value of the asset is included in the deceased’s estate and is subject to probate. Therefore, joint tenancy might not be the best property titling method, if you want to share joint ownership with somebody other than your spouse. If one of the owners doesn’t honor his/her financial obligations, the asset can be subject to the pursuit of creditors up to that owner’s respective ownership percentage.
Tenancy in common. This is similar to joint tenancy in many ways. However, the big difference between joint tenancy and tenancy in common, is that the relative ownership percentages of the tenants in common may differ. One owner can own 25% of the asset, while the other can own the other 75%. If one tenant in common dies, the percentage of her ownership in the asset is included in her estate and is subject to probate.
JTWROS. Joint Tenancy with Rights of Survivorship (JTWROS) means that the right of survivorship distinguishes JTWROS from joint tenancy and tenancy in common. When the owner dies, her share of the ownership is transferred to the surviving joint owner automatically by operation of law without probate. Each joint owner also has the right to transfer or sell his or her interest in the property without the consent of the other joint owner, and thereby destroy the JTWROS status. Were this to happen, it would convert a JTWROS into a tenancy in common.
Tenancy by entirety is a JTWROS between spouses. However, neither spouse can transfer or sell their interest, without the consent of the other spouse. Tenancy by entirety is better protection from the creditors against one spouse than a JTWROS. That is because the property isn’t owned by either the husband or the wife but by the marital entity.
Community property. This is recognized in Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Community property provides that married couples own an equal and undivided interest in all properties accumulated while they are married. Each spouse owns half of the value of the community property, and either spouse can transfer or sell one half of the property. When one spouse dies, one-half of the value of the community property is included in the probate estate and gross estate of the deceased spouse.
There are different methods of joint-ownership property titling. Select the right method with the help of your estate planning attorney to avoid a future costly probate process.
A better plan is to sit down with an estate planning attorney and create the documents that go into an estate plan, including a will, powers of attorney and a health care proxy.