In our Filipino community, there seems to be a reluctance to engage in comprehensive estate planning through the execution of living trusts, wills, and powers of attorney. Instead, many families have traditionally relied on adding the children and other chosen heirs on the home’s title as joint tenants. This is not a smart solution. Joint tenancy is a way of holding title where each owner owns the same proportion of the property and has a “right of survivorship.” The right of survivorship means when one owner passes away, his or her share automatically gets divided up equally among the remaining owners on title. While this can result in the children inheriting as planned, there are several other pitfalls that one must consider before executing this type of deed.
The most glaring deficiency in executing only a joint tenancy deed is the inability to engage in any kind of advanced planning for the future. With a joint tenancy deed, each person on the deed will get an equal portion of the deceased’s share of the home and that’s it. However with the proper estate planning there can be different percentages of estates distributed to each beneficiary. What if your daughter has been helping take care of you for the past 5 years, taking you shopping, cooking meals, and helping you clean? Unfortunately, you can’t leave her a little something extra with a deed, she will get the same share as everyone else named on the deed. Alternatively in a trust she can receive more than other beneficiaries at your discretion when creating the trust. What if you have a child that is not good at managing money? With proper estate planning you could set up a spendthrift trust that could help provide for an imprudent child for a long time.
In life tragedy happens, people die unexpectedly and things don’t go according to plan. With the proper estate planning such as an executed trust, safeguards can be built in to account for these tragedies that can and do happen. Executing a joint tenancy deed without a living trust can make an awful circumstance even worse. If your estate plan only consists of a joint tenancy deed and your children die before you do, your home could end up in probate, costing your heirs thousands of dollars and years in the courts. What if you and your children all die in a car or plane crash? There would be no chance to add other family members to the deed, and you will have no say in who inherits your property. With a properly executed trust, there can be built in beneficiaries otherwise called “issues” that would only receive benefits if the beneficiary listed in the trust named them as their issue and they pass away before the assets are distributed.
Joint tenancy deeds can also open the door to family infighting and lawsuits. Using a joint tenancy deed as a substitute for a proper estate plan can lead to vulnerability to fraud and estate planning scams. With a trust, you are protected by a no-contest clause which states that heirs that bring a lawsuit lose their inheritance and the ability to use a certificate of independent review (another attorney evaluates the trust and your capacity, making it more difficult to challenge).When you execute a deed on your own you have a higher probability of including mistakes, which can complicate later transfers or sales. Additionally, if you executed the deed later on in life, heirs that you intentionally left off the deed might claim that you lacked capacity and contest the transfer. All of these problems can be handled by an estate planning attorney who will guide you and your family to the best solution possible to avoid family feuds later in life.
Financial issues can also present themselves when you create a joint tenancy deed with your children. As the persons that you add on title now own a legal interest in the property, they have the right to force the sale of your home. When the home is put into a trust the heirs will only have access to the home and have the ability to sell the home once you pass away. This ensures that your heirs will not try to sell the property out from underneath you leaving you homeless. What’s worse with a joint tenancy deed is, if any of your kids on the deed file bankruptcy or a judgment creditor forecloses a lien, the whole property may be sold to satisfy your child’s debt. This can be avoided by putting the home into a trust that is protected until you pass away instead of putting the child on the title of the home and risk financial problems in the future.
Additionally, if the home is sold after your passing, your children will adopt your cost basis in the value of the property. This means they will have to pay up to 20% capital gains tax on any appreciation of the home since its purchase. If you create a revocable living trust through which your kids inherit your home, they will receive a step-up in basis (it’s like they bought the home at market value at the time of your passing). This means that any capital gains tax that would have to be paid if the home were sold at the time of your death are effectively wiped out. Protecting the home in a trust allows your children to have less financial obligation to your property when you pass.
Finally, executing a deed cannot be undone. With a living trust, you can change the provisions and beneficiaries of the trust at any time. This allows you to have more control over your assets through the ups and downs of life. Agreements on sales and transfers of the property must be unanimous with all persons stated on the title of the home unless you get the courts involved. With a trust there can be an executor who will determine what is to be done with the estate based on the trust upon your passing.
There is not an alternative to a proper estate plan, it is the only way to ensure proper distribution of your assets upon your passing. Executing a joint tenancy deed is a quick and easy fix but it is not the best solution.
* * *
Elder Law Services of California is proud to announce that attorney Andrew Paranal has joined its trust department. Mr. Paranal began his career in estate planning in 2013 and has since expanded into asset protection and Medi-Cal planning. He became interested in Elder Law after helping care for a family member who experienced a debilitating event. Mr. Paranal is excited to join an established law firm and hopes to educate his Filipino community about the tremendous benefits of proper estate planning.
For more information, please visit elderlawcalifornia.com or call 1-800-411-0546
Please follow us on our social media sites for up to date information!
Facebook: https://www.facebook.com/elderlawcalifornia
Instagram: https://www.instagram.com/elderlawservices/
Twitter: https://twitter.com/elderlawservice