One of the features of Blogger is that you can see the list of the most popular posts on a blog. Currently our number one post is "What happens when someone dies without a Will?" It is easy to see why this would be a popular search, since it may well be true that a very large number of people die without a Will or a Trust, which is known as dying "intestate" (the technical legal term). The chap to the right looks very satisfied with himself. He may have been thinking "I have my property sorted out and I did it all by myself!" However, he may well have simply created a minefield for his heirs.
Our post from 2009 addressed the basic question of what happens in an intestate estate administration. That post set forth the basic ways in which property can be transferred when someone dies without a Will or Trust: (I) by small estate declaration, (II) by "contract" or (III) through a probate proceeding.
In this post I will elaborate a bit on what by "contract" means. We use "contract" to cover a wide range of non-probate transfers. The most common may be the joint tenancy. Joint tenancy means that title to a piece of property, either personal property, such as a bank account, or real property, is in the name of two or more people as joint tenants. The long phrase is "joint tenants with right of survivorship" and what it simply means is that when any joint tenant dies, upon proof of death, the property passes to the other joint tenants.
Joint tenancy has always had one advantage going for it -- simplicity. It is not a big deal to put a bank account into joint tenancy, you just fill out the appropriate form at the bank. For real property, a deed is required, but these days many people attempt to fill out their own deed and often are successful. When real property is purchased, the escrow company can simply put the title into joint tenancy at the request of the buyer.
However, joint tenancy has a number of disadvantages, which can run the gamut from annoying to serious:
1. It assumes order of death. For estate planning purposes, properly drafted documents take into account variables in who dies first. At best, if a parent puts a child on as a joint tenant and the child dies first, it is a waste of effort. At worst, if the child is put on only one deed with the intent of that particular property going to that child, and ultimately to that child's children or spouse, and the child dies, then the property reverts to the parent, and does not go to the child's heirs.
2. It provides no protection against disability. One of the benefits of a revocable trust is that it applies if the settlor (or creator) of the trust becomes disabled. Putting property in joint tenancy does not have any management upside -- both joint tenants must executed any documents of sale or financing. So if a parent puts a property in joint tenancy and becomes incompetent, that parent could not execute any documents with respect to that property, and problems could easily arise.
3. No creditor protection on first death. Another issue with a simple joint tenancy between husband and wife is that the change in tax laws has perhaps led some to ignore other, non tax issues. For example, a couple who are in no danger of amassing an estate worth $10 million could have all of their assets in joint tenancy, and thus if one dies all goes to the survivor. However, this does not deal with: creditors of the surviving spouse, everything from potential remarriage to medical bills. With a trust, half of the couple's net worth would have been protected. Plus, upon the death of both parents a probate would be necessary.
4. It is easy to forget. A joint tenancy is so simple that its easy for a person to forget they even have set one up. We have had many instances where one of the contingencies discussed in this memo occurs and the client, or the client's children, are surprised to learn of a joint tenancy property or account set up years before.
5. It does not verify actual ownership interest. This is a real nuts and bolts problem. For example, take refinancing or sales of property. Once a person is a joint tenant, they have to sign off on all of the documents relating to that property. A second point that comes up is whether, when a couple puts a child on a deed as a joint tenant, if they intended a specific gift. The IRS generally says "no" but the County Assessor, who is looking to re-assess property, may say "yes." In California, the Proposition 13 property taxation system always needs to be considered.
The other, most common way an interest in property can pass is by "beneficiary designation" which I will cover in another post.
For now, the main thing to consider is that estate planning is all about "planning" for various contingencies. Many clients are unaware of all the possible contingencies which might affect them. That is where we can help, since we have experience with just those contingencies a client might miss.
When it comes to sorting out an estate of a person who dies intestate, many of the same contingencies a client should have considered while alive are triggered. This is where our expertise again is of great help to clients, because just as much planning can occur after a person dies as before.
The majority of the work in our practice, in terms of hours spent, is always on post death administration, be it sorting out an intestate estate or resolving a dispute.
Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga and Mooney, A Partnership.
For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210. The firm website is www.moravecslaw.com
