You may have heard that owning property jointly will avoid probate. Probate is the court process of overseeing the distribution of your assets after your death. It can be expensive and time-consuming compared to trust administration or beneficiary designation. As a result, many people wish to avoid the process by naming their spouse or, in some cases, children, as joint owners of their assets. However, such strategies have limitations that should be addressed with a knowledgeable attorney.
Common methods to avoid probate: Community property often avoids probate. But owning property as community property with your spouse will not avoid probate if your spouse gifts his or her community interest in property to someone else. (Community property law allows each spouse a fully vested right in his own 50% share of the asset; you might think of it as two individually owned halves rather than a jointly owned whole. Joint tenancy also avoids probate. But joint tenancy will not provide the same tax benefits as community property ownership, such as a full step-up in basis on the first spouse’s death. Planning through a trust may accomplish all your goals by not only avoiding probate but defining each spouse’s post-death distributions, providing for the surviving spouse, and preserving more assets for beneficiaries.
Other ways to avoid probate: If the surviving spouse is the beneficiary, he or she may qualify for an abbreviated probate process, known as a Spousal Property Petition. This process is often faster and less expensive than a full, formal probate. Alternatively, when property is owned in trust, the surviving spouse may simply notify the relevant institutions of the death of the spouse and assume his or her position as sole trustee, according to the provisions of the trust. Although it is still important to consult an attorney following the first spouse’s death in order to determine whether any steps must be taken, including notifying beneficiaries of a trust that has become irrevocable and changing asset titles, the requirements are typically less than with a probate.
The biggest differences between using joint ownership as an estate planning strategy and completing a formal estate plan, however, occur before either spouse dies and after both spouses have died. Estate planning can prevent conservatorship during life by providing for a smooth transition of financial and medical decisions if necessary. Through a QMap Trust or QVap Trust, you can optimize assets between the spouses if one spouse becomes ill and requires Medi-Cal or VA Aid & Attendance Non Service Connected Disability benefits. Planning ahead can avoid driving the well spouse into poverty in order to meet stringent qualification requirements. As a result, the surviving spouse will retain more assets and, ultimately, more may be available to beneficiaries.
Additionally, joint ownership may defer probate until the surviving spouse’s death. However, if the surviving spouse does not engage in estate planning or name a new joint owner, then probate will be necessary. Continuing to name joint owners can create inequities among your beneficiaries or lead to bizarre results! It is wise to consult with an attorney about your goals and the best way to achieve them before assuming that joint ownership will resolve your concerns!
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