Let’s face it--no one likes thinking about the inevitable, but preparing for it is a must. Creating an estate plan will preserve your wealth for later generations and will protect your family’s privacy. When it comes to valuable assets, an estate plan will minimize taxes and expenses that occur when assets are inherited and will distribute assets quickly while minimizing legal hassles.
For many of us, our most valuable asset is real estate. Whether it’s a home or an investment property, there are simple ways to transfer real estate to your heirs without tying it up for months, sometimes for years, in a costly probate process. In real estate terms, waiting a year to potentially sell a property could end up costing your heirs thousands of dollars in sales price if the market shifts. Choosing one of the following options will transfer your real estate with ease during the difficult time of grieving because no one wants to leave their heirs with less than what we intended.
When it comes to real estate, merely titling the property as a type of joint ownership is an easy and simple way to avoid probate when one of the owners dies. Usually, a real estate deed is the written document that shows who owns a property and how that ownership is structured. When one of the owners dies, the way a property is titled dictates what happens next.
The most common ways to hold title to real property are:
Joint tenancy with right of survivorship. Property owned in a joint tenancy passes automatically to the surviving owner(s) when one owner dies. Ownership interests of each joint tenant are equal. If there is more than one surviving owner, the deceased owner’s share is divided equally among the remaining owners. This process happens automatically upon death so no probate process is required. A joint tenant may not dispose of his or her interest by a will—his or her interest by law will be divided equally between the surviving joint tenants. The creation of a joint tenancy must be in writing.
Community property with right of survivorship. Married couples (or registered domestic partners in California) living in and owning property in a community property state may title property as community property with the right of survivorship. Ownership interests are equal. By holding property this way, the surviving spouse automatically owns 100% the property when the other spouse dies. No probate process is required if a property is held as community property with right of survivorship.
Tenancy by the entirety. Some states permit married couples to take title as tenancy by the entirety. Only married couples can use this option to avoid probate. Ownership interests are equal. Here, the surviving spouse automatically owns 100% of the property when the other spouse dies. No probate process is required if a property is held as a tenancy by the entirety.
Tenancy in Common. Any number of persons or entities may hold title as tenants in common. There is no requirement that tenants must be married. This type of ownership is the default if no clear indication is made in the deed, unless title is held by married persons or domestic partners. Ownership can be divided into any number of interests, equal or unequal. Here, a tenant’s interest passes by will and does not automatically transfer to anyone upon the death of a tenant. If there is no will instructing who inherits the interest, then the interest must be probated.
Probate is a lengthy and expensive process for your heirs to deal with while they are grieving your loss. Although this advice is not exhaustive, this is a simple way to start planning your legacy today to avoid problems tomorrow.