The Family Post 3

The Family Post 3

There were so many estate planning mistakes made in the scenario I wrote about in my last posting.

 

First of all, it’s probably not wise to make an integral part of your planning the expectation that a child will always survive his or her parent.  Sure, it’s a likely expectation, but it’s not certain.  And why let everything hinge on such an expectation?  Is it really reasonable to put your daughter’s inheritance (and housing) at risk over something you have so little control over?

The second mistake was that they treated a joint tenancy as a legitimate estate planning technique.  It really isn’t.  Unless you are husband and wife, holding property in joint tenancy is more likely to frustrate your estate planning intentions more than anything else.  And even the husband and wife pair has a better option, which we’ll get to in a future posting.

 

You saw the effect that their setup had on our scenario: The estate passed the wrong way generationally when an unexpected death occurred.  But joint tenancy also causes other issues.

Property you own in joint tenancy will not pass in accordance with the instructions in your will; it will always pass to the surviving joint tenant.  This means that you can say whatever you want in your will about where property you co-own with another person in joint tenancy will go, but it won’t matter.  Imagine you took title to a vacation home you bought with your brother and you never really paid close attention to the deed, which provides that you and your brother hold title as joint tenants.  If you die first, then his family gets the whole property, no matter what your will says.

 

Beyond estate planning, let’s think on more basic terms.  Adding your kids to the title of your house will indeed avoid the court process of probate when you die, and the house will pass to your kids on your death.  But does that mean you and your kids should co-own your home together with you while you are still living in it?  A share of your home that is owned in joint tenancy by your child is subject to the claims of the child’s creditors – think about what would happen if your child got into an at-fault auto accident.  Worse yet, that portion owned in joint tenancy is also available to use as collateral on a loan, so Junior could conceivably mortgage your property without telling you.

 

Joint tenancy also causes major tax complications and is a great way to make sure your kids pay maximum capital gains tax when it’s time for them to sell the house after you pass away.  Here’s a great article from the San Francisco Apartment Association on that subject: http://www.sfaa.org/0501schultz.html.

Just don’t get caught up in what we often refer to as “poor man’s estate planning”, especially considering there are other traditional and more effective options available to plan one’s estate.

brook
brook@cadocpreparers.com


During this extraordinary time of COVID-19 closures, California Document Preparers is still open for business. We are continuing to operate in light of the Shelter-in-Place order, especially over the phone, via video chat, or through the website.

 

You may call our Oakland or Walnut Creek offices at their regular numbers and someone will answer:
Oakland:  (510) 452-2320
Walnut Creek:  (925) 407-1010

You can also call our Dublin office at (925) 479-9600 and you will receive a return call as soon as possible.

 

Our top priority is safety.  We also acknowledge that many of you have expressed an urgent desire to prepare your estate documents in light of the current public health crisis.  We are there for you and ready to assist.

 

The times have changed, but our dedication to service has not.  We appreciate your continued support and wish you and your family stay well under these difficult circumstances.

 

California Document Preparers

Helpful. Compassionate. Affordable.