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Money May 2016

Legal Ease

What You Say Is What She’ll Get – But Not Necessarily What Either of You Wants

By Jonathan J. David

You need to make sure that she is added to the title as a joint tenant with rights of survivorship, and not as a tenant in common. If she is added to the title as a tenant in common, then each of you will be deemed to own an undivided one-half interest in the home, and upon your death your 50% interest would need to be probated prior to it being distributed to your daughter.

Dear Jonathan: I am a retired widower and I have one child, a daughter. Most of my net worth is tied up in my IRA which came from my 401k when I retired. Other than my IRA, the only assets I have of any value are my home and my bank and brokerage accounts. After my wife passed away I updated the beneficiary designation on my IRA naming my daughter as the beneficiary.

I know from reading previous columns of yours that it is recommended that a person prepares both a will and a trust, but can I avoid the cost and hassle of doing so by adding my daughter’s name to the house and bank and brokerage account titles? She is my sole beneficiary and my understanding is that by adding her to the title, she will automatically own those assets at my death without those assets having to be probated. Is this correct?

 

Jonathan Says: Yes, if your daughter is added to the title of your bank and brokerage accounts as a joint owner, then upon your death she will automatically be the sole owner of those accounts without those assets having to go through probate first. Further, if your daughter is added to the title of your home as a joint tenant with survivorship rights, then she will also become sole owner of the home upon your death without it first having to be probated. However, if you decide to go this route, you need to make sure that she is added to the title as a joint tenant with rights of survivorship, and not as a tenant in common. If she is added to the title as a tenant in common, then each of you will be deemed to own an undivided one-half interest in the home, and upon your death your 50% interest would need to be probated prior to it being distributed to your daughter. Consequently, you need to be careful as to how the language reads on the deed if you decide to add your daughter to the title.

Having said the above, even though adding your daughter to the titles of those various assets will avoid probate, as well as the cost of preparing a last will and testament and a trust, it creates other potential problems for both you and your daughter. First of all, by adding your daughter to the title of your home and bank and brokerage accounts, you lose a measure of control. As for your bank and brokerage accounts, your daughter would have full access to the money in those accounts and could withdraw any or all of the money at any time without your approval. As for the house, in the event you ever want to sell the house, you cannot do so without her agreeing to the sale.

Adding your daughter’s name to the title of your home could also potentially create a gift tax issue (when her name is added to the title) and a capital gains tax issue (when the home is sold after your death), depending upon how she is added to the title and what is discerned as the purpose for adding her to the title. I would suggest that you discuss these potential tax ramifications with your CPA or attorney prior to taking any steps to have you daughter added to the title to your home.

You can avoid the aforementioned potential problems by not adding your daughter’s name to the title of your assets and instead create a trust and name your daughter as the beneficiary of those assets upon your death. If you want to avoid probate, then after creating the trust you will need to retitle your home to the trust and either name the trust as the owner of the bank and brokerage accounts or name the trust as the beneficiary of those accounts pursuant to a transfer on death designation. By taking these steps, not only do you maintain control of the assets during your lifetime, but upon your death your daughter ends up owning all those assets without those assets having to be probated first.

In addition to the trust, it would make sense to prepare a will naming the trust as the beneficiary of any assets you failed to retitle to the trust during lifetime, as well as both financial and health care durable power of attorneys which allow you to name your daughter to act for you regarding both your financial and health care matters once you are no longer able to act for yourself.

I recommend that you meet with an estate planning attorney in your area to discuss this with you in more detail. Good luck.

 

Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, PC, 1700 East Beltline, N.E., Grand Rapids, Michigan 49525.

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