One of the concepts I stress in discussing estate planning with my Clients is that title is king - meaning that how assets are owned will trump everything else. Trusts, wills, beneficiary designations, everything will fall victim to a failure to properly title assets. One of the common problems I see is a misunderstanding about co-ownership. Joint tenancy and tenancy in common are the two most recognized forms of co-ownership. While both types result in ownership of an undivided interest in the property by each of the co-owners, the results at death are significantly different. With tenancy in common, the owner’s undivided interest will pass to her heirs in accordance with state law or her will upon death. The distribution is achieved through a probate of her estate. Joint tenancy, on the other hand, has a right of survivorship meaning that the owner’s undivided interest will automatically pass to the other owner without a probate. With a joint tenancy, it does not matter what the owner’s will states, the property will pass to the other owner.
Often, people will plan to avoid probate by using joint tenancy ownership. While this can work well with spouses, the consequences can be disastrous if done with a non-spouse. Once in ownership, the non-spouse's creditors or a divorcing spouse can claim a part ownership or lien. Additionally, there is nothing to require the other owner to redistribute the property or money from its sale to other heirs.
When planning for assets, it is important to carefully review all titling documents to ensure that ownership is coordinated with estate planning goals and objectives. If a trust is part of the plan, with few exceptions assets should be titled in the name of the trust. We recommend setting aside time each year to review your estate planning, including a review of asset ownership. Doing so will significantly increase the likelihood that your estate planning efforts will succeed.
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Title is King
Posted on: August 1st, 2012