Carefully consider your title when making estate plans
Among the many decisions made when purchasing a home, few people are focused on how they will hold title to the property.
You may be asked by the closing attorney at some point in the weeks leading up to the closing if you want to own "in survivorship" or as "tenants in common" but few remember later they made a conscious choice.
Increasingly, a simple decision that makes so much sense to a young couple when purchasing a home presents estate and asset planning challenges in later years.
Traditional estate planning goals -- the orderly disposition of assets and limitation of estate and income taxes -- are easier to achieve when the planning involves a look at the type of ownership of assets.
Those assets can include homes or real property and bank accounts, stocks and even IRAs, known as personal property.
A will or estate plan should not be constructed without an analysis of the title of your property.
Real and personal property may be owned alone, known as sole ownership.
At death, sole property is disposed of by a will and distributed through the probate court system.
Property may also be co-owned. There are two types of co-ownership.
Joint tenants with rights of survivorship is a type in which two or more persons own the same property subject to the joint tenants' rights.
When a joint tenant dies, the property belongs automatically to the remaining joint tenant or tenants.
Owning as joint tenants with survivorship does not mean that the first person's estate avoids probate. In fact, the house, along with other assets, is subject to the probate administration.
It is necessary in case there are tax liabilities, but also is done to provide clear title to the surviving joint tenant.
Another way to hold property as co-owner is as tenants-in-common.
Tenants-in-common hold undivided interests in the same property.
On the death of a co-tenant, for example, a husband, his share will be transferred according to his will and not automatically pass to his surviving wife who is the co-tenant.
His will would be written with his choice of distribution which for estate planning reasons would not be his spouse. The spouse would continue as a co-owner with a different co-tenant.
There are asset management and estate planning reasons to choose joint tenancy with survivorship or tenants-in-common. It is important to consider the choice either on purchase or when making estate planning decisions.
If a couple keeps their home as joint tenants with survivorship, the value of the entire house, often the largest asset a couple has, belongs completely in the estate of the surviving person.
If this surviving spouse later needs care in a long-term care facility, the entire value of the house must be used for his or her care before he or she would be eligible for Medicaid.
The couple, using a quit claim deed to change the type of ownership to tenants-in-common, retain full control of their home, but accomplish key goals in estate planning.
On the death of the first spouse, that spouse's interest could have been left to a supplemental needs trust.
This type of trust allows a surviving spouse to receive Medicaid benefits. At least one-half of asset offers relief of care for her and is preserved for your future needs and then for your children.
Bank accounts present another area of concern in estate planning.
Adding a son or daughter to bank accounts often helps an older person with paying bills. However, if an account is opened with rights of survivorship to the child, he or she is considered owner of all the funds on the death of the parent.
For a family with one child to inherit, this may not present a problem. If there are more children, one will be benefited beyond the others by a windfall from the bank account.
This uneven distribution often causes dissension among children and difficulties in probate administration.
Further, it may result in difficulties if the child has credit or marital problems.
One solution, which gives ease of access but does not put the account in the child's name, is to have the child added as a legal signer on an account or through a Durable Power of Attorney.
No ownership rights are given and the funds in the account are distributed as part of the estate, according to the will.
As you consider estate planning, for long-term care purposes or for assurance your assets will pass as you wish, consider your title.
A look at the evidences of title, your deeds, your bank books, are a starting place.
Once you have determined in whose name and how the interests are held, you can consider the factors of proper protection and disposition to accomplish your long-term goals.