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Estate Planning Hazards
Figuratively speaking, life is chock full of road hazards. If we know where they are, then we can avoid them. It is the unknown hazards that are the problem. Just like when traveling on an unfamiliar road, it is best to learn from the experiences of those who have been down that road before. For example, if that automobile in front of you swerves to miss a crater in the street, then you may want to do the same. So it is with your estate plan. We can learn a lot from the failures and near misses of others. In that spirit, consider two familiar sources of dangerous estate planning hazards: beneficiary designations and joint tenancy ownership.
Depending on the state in which you live, virtually any titled asset may pass directly upon death simply by adding a beneficiary designation. Likely, many of your assets will pass by a beneficiary designation, including life insurance, annuities, and retirement funds. In addition, the non-probate transfer laws of many states provide for “pay on death” or “transfer on death” designations that work in much the same manner. Consequently, you may even designate beneficiaries for bank accounts, CDs, stocks, and other assets. Some states provide for the transfer of real estate through a special transfer on death deed.
Arranging for transferring your assets at death by beneficiary designations is attractive for several reasons, including its simplicity and the fact that little to no attorney work is required. While all of this looks smooth on the surface, beneficiary designations can become severe hazards regarding your estate planning objectives.
Beneficiary Designation Hazards
For example, did you know that any assets designated to pass directly to your beneficiaries are not subject to the terms of your estate planning legal documents like your will or trust? Consequently, you may be disinheriting some of your heirs in whole or part. In addition, any asset protection or special needs planning you created in your will or trust may not take effect as intended. Keeping your beneficiary designations current is vital to the success of your estate plan. You cannot simply take a “set it and forget it” approach.
Joint Tenancy Ownership
If you own any assets jointly with others, then you are in good company. Joint tenancy is one of the most common forms of asset ownership. If you own a bank account, brokerage account, or perhaps real estate with one or more persons, then chances are pretty good that you and they may be joint tenants. The full legal expression for this form of ownership is joint tenants with rights of survivorship (JTWROS).
Although JTWROS is most often found on the title to assets owned by married couples in common law states, residents of community property states also should understand JTWROS given the mobile nature of our society. In some states, a particular form of joint ownership called tenancy by the entirety is available to assets held solely between spouses. There are unique “asset protection” aspects to tenancy by the entirety ownership that can be very beneficial.
When one or more persons hold title to an asset as joint tenants, each owns the asset. In most cases, if one joint tenant becomes incapacitated, then the other joint tenant may continue to fully control their JTWROS assets without interference because of their concurrent ownership rights. When one joint tenant dies, the remaining joint tenants continue to own the asset without the need for probate. Ultimately, the sole surviving joint tenant owns the entire investment. This “right of survivorship” is one of the attractive legal features of JTWROS.
Not surprisingly, many JTWROS relationships are between family members. It just seems like the natural thing to do and, especially between spouses in a long-term marriage, reflects their commitment’s financial partnership.
For this reason, many widows, widowers, and other single adults may add trusted family members or friends as JTWROS to their assets. Nevertheless, as with most things in life, there are hidden hazards regarding this form of asset ownership.
Joint Ownership Hazards
While it is true that JTWROS may avoid probate at death, this is true only if at least one living joint tenant is not also incapacitated. To ensure this, however, most people add non-spouses as joint tenants.
Whether it is children, siblings, or friends, resist the temptation! Once you add a joint tenant to a given asset, they also own the given asset just as you do. What you may have intended merely as a convenience has instead subjected the control, use, and enjoyment of such asset to the potential liabilities of each joint tenant. These liabilities may come in many forms through your joint tenant, including divorces, lawsuits, or creditors.
Your intentions for the eventual distribution of your assets may be frustrated due to JTWROS ownership. For example, your will or trust may not control assets held in JTWROS. Often, assets passing to a surviving spouse later end up in JTWROS with a new spouse. That new spouse (and stepchildren) ultimately may receive assets from the previous marriage instead of the children you intended to protect. Considering the disinheritance risks in every blended family situation would be best.
Easy May Not Be Better
As with any decisions affecting beneficiary designations and asset titling, consult with an experienced estate planning attorney. Otherwise, you may fall victim to some highly unpleasant legal hazards.
To Learn More
We are having basic estate planning seminars. If you want a refresher on your own planning, want to introduce your family to what you have done, or want to give a friend a chance to find out about their options for planning, please pass this on.
To find out more about the seminar, please click here.
THESE SEMINARS ARE AT OUR OFFICE NEXT TO THE POST OFFICE ON MAIN STREET
Tuesday, August 16, 1:00 PM-2:30 PM
Wednesday, September 14, 2:30 PM-4:00 PM
Seating is limited, so call at 301-776-7900, or go to the events tab on our website to reserve your seat
Light refreshments will be served. We hope you can make it to one.
We are also holding the program as a Webinar on September 27 at 6:00. Visit the website for details
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