How to avoid accidental joint tenancy

Dear Len & Rosie,

I never married and I have no children. I have two sisters, one of whom, Patty, is in a nursing home in California, paid for by the state. I am not leaving her anything because the state would probably take it and my other sister, Julie, would see that she got money when she needed it.

Everything I own; my home and my bank accounts, are in both my name and Julie’s name so that she would get it when I die. Is that enough? Should I see an attorney and have a will made up?

Betsy

Dear Betsy,

We’ve worked in the trusts and estates field long enough to see estate plans such as your own fall apart. Your plan rests on the assumption that you will die before your sister Julie, who would then safely inherit everything from you. What if it doesn’t work out that way?

When you added Julie’s name to all of your assets you created a joint tenancy. If you die first, then Julie, as the surviving joint tenant, will own everything, without having to go to court and file for probate. This assumes that the home is in Joint Tenancy. You should check your deed, just to be sure. The grantees on the deed should be Betsy and Julie, as “Joint Tenants” or “Joint Tenants With Right of Survivorship.”

If your home is in joint tenancy, then upon your death Julie will inherit the home without probate. The downside is that the property will be subject to a reassessment under Proposition 13, causing the annual property tax bill to increase dramatically. This can be avoided, but only if your sister lives with you in the home, for at least one year prior to your death.

The one problem with your plan is that your sister Julie may die first. After all, you were both born into the same generation. If Julie dies before you and you are unable to update everything, for whatever reason, then your disabled sister Patty, if then living, will inherit at least part of your estate and lose her eligibility for Medi-Cal benefits. Even worse, upon Patty’s death, your home and other assets may be subject to a reimbursement claim for Medi-Cal benefits paid on Patty’s behalf.

Therefore, Joint Tenancy is not enough. At the very least, you should back it up with a will providing for the disposition of your estate if Julie dies before you do. While you are at it, you should have a durable power of attorney and an advance health care directive in case you become incapacitated so that someone you trust may manage your affairs and make important decisions on your behalf.

Len & Rosie

Will you avoid probate with Community Property with Right of Survivorship

Dear Len & Rosie,

My husband and I have our house in Community Property with Right of Survivorship, and our 403b’s and IRA’s have designated beneficiaries. All our other accounts also have beneficiaries. We have only have handwritten wills as of now. From my research, none of the above would go through probate.

I know that is probably a naive plan, but we are with the dreaded majority that have yet to contact a lawyer to complete the process. Am I at least correct on the probate part for those items listed?

Annie

Dear Annie,

You have made a good start, but you are really only halfway there. You will avoid probate when the first of you dies, but you won’t avoid probate on the second death. The problem is your house. It will avoid probate on the first death, because it’s titled as community property with right of survivorship, and your retirement accounts and other investments will avoid probate if you have designated beneficiaries for each account.

When the surviving spouse dies, the home will be subject to probate in the courts if you don’t create a trust. While you could add your children to the deed as joint tenants, that’s a very bad idea in practice. They could get sued and you’d could wind up with a judgment lien on your home. Or a child could refuse to sign the deed or loan documents if you ever want to sell or borrow against the property. Forget about putting your children on the deed to your home, ever, unless there’s no other alternative and you do so with the advice of an attorney.

Ideally, you and your husband should create a revocable trust. If you don’t do this, the surviving spouse could create a trust after the first death. But it’s best to do it now, because avoiding probate isn’t all there is to estate planning. You should have durable general powers of attorney and advance health care directives so you and your husband, or your children, can make important legal and financial decisions for one another if either of you become incapacitated.

You should also review the beneficiary designations of your retirement accounts. You said you have taken care of this already. But have you really? Does each account name alternate beneficiaries? Do you have copies of signed beneficiary designation forms in case your IRA custodian or insurance company loses the paperwork? Be very careful with your retirement account beneficiary designations. If you made a mistake, there won’t just be a probate, there will be a whole lot of income tax due on your retirement savings when you die. Your children could lose the ability to stretch out retirement account distributions (and the income tax liability) over their own lives.

So, you’ve made a good start. Sort of. But you’re not there yet. In a pinch your plan will work, assuming your wills are valid and actually do what you want them to do, but if you really want to be sure, you need to consult with an attorney and create a proper estate plan.

Len & Rosie