When you want to leave a valuable asset behind for your beneficiaries, real estate makes an excellent gift. However, if you do not plan carefully, the property may have to go through probate court. Once it is in probate court, the court decides how to divide your estate and property. This means it may have to be sold and some of its value used to pay probate fees, taxes, attorney fees, and more. Even if the court follows your wishes as stated in your will, probate could mean a lengthy hassle for your heirs.
Why a Will May Not Be EnoughIt is often believed that making a will is an excellent way to pass on your property. Although this tool works in many situations, it’s important to remember—especially if you have a larger estate—that a will can be contested. If it is, the settlement will be delayed, and your wishes as to which beneficiary or beneficiaries should inherit your property may go unfulfilled.
A Living TrustOne way to avoid probate on your real estate is to create a living trust—also called a revocable trust. When creating a living trust, you would normally name yourself as the trustee, and also name a successor trustee.
While you are alive, you are the trustee of your living trust. This enables you to retain complete control over the assets and real estate in the trust. You are free to remove them from it or add more to it at any time.
When you die, your control over your property ceases. It is put into the trust, where it falls under the new trustee’s control. Since you will no longer own the property, it cannot fall into the hands of probate court when you die. Creditors also cannot touch it at that time.
Joint Ownership of PropertyWhen you have joint ownership of property, the probate court does not get involved. At the death of a partner, the property is transferred automatically to the surviving owner. To get joint ownership, the owning parties must sign the deed and describe their joint ownership clearly in it.
Having joint ownership of your property is a good way to prevent the probate court from getting involved. When one partner dies, the property is transferred automatically to the surviving owner.
There are four different ways that you can have joint ownership of real estate or other property. They are:
A Tenancy in Common (TIC) arrangement makes each tenant equal. All owners have equal access and use of the property, although they can own varying shares of the property.
One tenant can sell their portion of a TIC without the consent of the other owner (or owners). They cannot sell the other tenant’s portion. When one partner dies, their ownership is transferred to a beneficiary chosen by the dead partner—not to the other tenant or tenants.
The joint tenancy arrangement is also called “joint tenancy with right of survivorship” (JTWROS). Married couples often use this form of joint ownership because when one spouse dies, the real estate is transferred automatically to the surviving spouse without going through probate court.
A surviving spouse can change the type of ownership if he or she intends to pass it on to a son or daughter. However, under TBE, the spouses cannot give the property to someone they are not married to.
Community property laws state that property acquired during a marriage (with some exceptions) is presumed to be owned equally by both spouses. It does not matter which spouse earned the money or bought the property. However, under community property laws, when one spouse dies, the half of the property that belonged to the deceased spouse does not automatically go to the surviving spouse.
In some states, this means designating community property with right of survivorship status on the property’s title. You will want to consult an attorney to make sure you are using the correct language. In other states, such as Texas, it involves drafting a separate document: a marital property agreement, or a community property agreement.