Transferring Property Without a Will
1. Why is having a will just not enough to have a decent estate plan?
Too many people don’t understand that there’s more to estate planning than merely writing a will. A will is the most important document in planning your estate. However, a will does not cover every aspect of your estate plan. Other assets and monetary benefits that are not controlled by a will include your IRA’s, insurance policies, income savings plans, retirement plans, and joint tenancy. A good estate plan should coordinate these assets that pass outside of your estate with your will and trust. By using them well can give your beneficiaries money much more efficiently then a will can. Meanwhile, if you use them incorrectly, you can negate your estate plan and frustrate your wishes.
2. What other ways can you transfer property at death?
There are other ways you can transfer property;
a. Retirement benefits and annuities:
Many people leave most of their wealth to their loved ones outside of their will. Your retirement benefits often pass outside of the will. Typically, a retirement plan will pay benefits to beneficiaries if you die before reaching retirement age. After retirement, you can usually pick an option that will continue payments to a beneficiary after your death.
When you start up a 401K or IRA you have to designate a beneficiary. This beneficiary will receive your retirement savings after you die. The beneficiary designation on your 401K plan will receive your retirement monies even if your will bequests your retirement savings to someone else.
b. IRA’s (Individual Retirement Accounts):
Your IRA will provide a ready means of cash when one spouse dies. If your spouse is named as the beneficiary, then the proceeds will immediately become her property when you die. Like retirement benefits (and unlike assets inherited via a will), they will pass without having to go through probate.
c. Life insurance
Life insurance is often a great estate-planning tool, because you pay relatively little up front, and your beneficiaries get much more when you die. When you name beneficiaries other than your estate, the life insurance money passes to them directly, without having to go through probate. If most of your money is tied up in non-liquid assets like your company or real estate, then the life insurance gets cash into your beneficiaries’ hands without they’re having to resort to a quick fire sale of other assets. In most cases, the beneficiaries usually receive their insurance proceeds promptly.
Generally, the beneficiary informs the company in writing of the death, sends a copy of the deathcertificate, and receives a check, often within a few weeks. In general, the older you are, then the less your family needs large amounts of life insurance. Term insurance provides protection not for your entire life, but only for a specified term of years; it’s cheap when you’re young, but gets more expensive as you grow older.
d. Joint tenancy
There are many different ways that you can own property. Any time that you own property with someone else it is called joint tenancy ownership. Join tenancy is a legal term that means, effectually “co-ownership.” If you and your spouse buy a house or car in both your names, then each of you is considered a joint tenant and both have co-ownership of that asset. When one of you dies, the other joint tenant will immediately own that individual asset by themselves, regardless of what either of you says in your will.
e. Joint tenancy with rights of survivorship
Joint tenancy with a right of survivorship can be very useful way to transfer property at death. Family automobiles and bank accounts often pass that way. Particularly in old age, people often place bank accounts or stocks in joint tenancy with their spouses, one or more children, or friends. When one of the co-owners dies, then joint ownership gives the other ones instant access to the account to help pay bills. The transfer avoids probate, lawyers, and court fees.
3. I love the idea of avoiding probate and having joint tenancy of my assets with my spouse and children. What are the downside of owning my assets jointly with my family members?
Joint tenancy is not the answer to all of your estate planning goals. Here are some tips about when to avoid it.
A. When you don’t want to lose control.
If you give someone co-ownership, then you give them joint control. If you made your son or daughter a co-owner of the house, then you can’t sell or mortgage it unless he agrees. If he or she later marries, then their spouse may also have to agree. If you do sell it, then he may be entitled to part of the sale proceeds. Joint ownership of stock also means you’ve lost control. If you put your son or daughter on your stock accounts as a joint tenant, then they could also veto any of your stock sales.
B. When the co-owner’s creditors might come after the money.
If creditors should sue your co-owner then they may be able to seizepart of the house or bank account. For example, creditors could attach your co-owner’s half of your joint bank account, or get a lien on his half of the house. If a creditor obtains a lien on your home, then this could prevent you from selling it.
C. When you can’t be sure of your co-owner.
You and your co-owner could have a falling out. Moreover, the other co-owner could take all the money out of the bank account. There’s nothing you could do about it, since the person is a co-owner. Basically, I have heard of situations wherein co-ownership of assets has turned into a disaster.
D. When you’re using co-ownership to substitute for a will.
Having joint tenancy of your assets doesn’t address the situation if all of the joint tenants die at once. Therefore, each joint tenant needs a will. Moreover, joint tenancy does not answer the question where your property goes if the younger joint tenant dies first. Therefore, you will still need a will. And if you put one child’s name on an account assuming he’ll divide the money equally among the other children, know that he is on his honor and legally can do with it what he pleases. Additionally, the transfer of property setting up this type of ownership could result in adverse income tax consequences when the surviving beneficiary sells the appreciated property.
E. When it compromises tax planning.
Careful planning to minimize the taxes on an estate can be thwarted by assets held by joint tenancy ownership that passes property outright to a beneficiary. For example, passing property by joint tenancy can increase estate taxes by preventing transfer to the children through a tax-avoiding bypass trust. It can also increase gift taxes–the IRS may consider adding a joint tenant to be taxable gift giving. Many of these problems occur with institutional revocable trusts and pay on death forms of ownership of bank, broker, and mutual fund accounts and savings bonds. If you own any of these kinds of property, be sure you understand what happens to them when you die, and plan accordingly.
F. When you’re in a “shaky” marriage.
Your individual property becomes joint marital property once it’s transferred into joint names.
G. When one of the co-owners becomes incompetent.
If one of the co-owners becomes legally incompetent to make decisions, part of the property may go into a guardianship. If your property goes into a guardianship then this may make it cumbersome at best if the other joint tenant wants to sell a house or some stock.
H. When you don’t want to transfer assets all at once.
Joint tenancies may also deprive you of the flexibility of a will or trust, in which you can use gifts and asset shifts to minimize taxes, and pay out money over time to beneficiaries, instead giving it to them all at once. Nonetheless, a joint tenancy does have its advantages. It’s inexpensive to create. But the ultimate costs can far exceed these initial savings.
I. Tenancy in common
Don’t confuse joint tenancies with tenancies in common. Ina joint tenancy you and your spouse both own the whole house, which means, among other things, you must both agree to sell it. In tenancy in common, on the other hand, you each own a half-share of the house, and either of you may sell your half-share without the other’s consent. In tenancy in common, different partners can own unequal shares of the property. For example, your will might leave your vacation home to your three children as tenants in common.
Another major difference is that if you own an asset in joint tenancy with anyone and you die, then ownership of that asset passes to the other joint tenant automatically. In a tenancy in common, your share passes as provided in your will or trust, with possible probate, estate tax, and other consequences. Tenancy in common can be less risky than joint tenancy, and it is very useful for larger estates in which you give shares of property to the children during your lifetime.
J. Inter vivos gifts
Perhaps the most common estate planning technique outside of having a will is to gift away your assets during your life. The most important benefit of this type of planning is that it is excellent medicaid planning. Are gifts made while you’re alive a good idea? Maybe, especially if you have a large estate: they can help you avoid high death taxes. Another advantage of giving property away before you die is that you get to see the recipient enjoys your generosity.
4. What is a summary of the type of property that does not pass via a will?
- Property held in joint tenancy
- Life insurance payable to a named beneficiary
- Property held in a trust
- Retirement plans payable to named beneficiaries, including IRA’s, Keogh accounts, and pensions
- bank account trusts (including pay-on-death accounts) payable to a named beneficiary
