Common rent problems in estate planning


Sometimes people use joint rent as a simple way to do estate planning. This can have drawbacks, sometimes serious and unpredictable.

First, why is a joint tenancy such a simple way to do estate planning? Upon the death of the joint tenant, the property automatically passes by law to the remaining joint tenant(s). This can be attractive as it goes beyond the probate process and all that it entails. Probate is the process that transfers the property that bears the name of one person (deceased) and transfers it to the name of another person. Wills are a public process that lacks privacy. Depending on the situation, probate can be costly and time consuming. With a joint tenancy, probate is not required because it is by nature of law.

However, if the spouses want to avoid a will, and Joint Tenancy avoids a will upon the death of the first joint tenant, it does not avoid a will in the survivor’s estate. Presentation of a survivor’s death will will be required unless further planning is done. The problem is that the survivor may be unable to plan because of grief, disability, or simultaneous death.

Let’s look at a quick example. John and Mary own their home in Joint Tenancy. This seems to have worked well for them for years. While driving home from work one day, John had a heart attack and died. De jure transfer of ownership to Mary. However, Mary is now distraught over John’s death and has postponed planning the property. Mary dies and the property is in her name and a will is required. Of course, if John and Mary had died in a public accident, a will would have been required as well.

However, there may be more serious problems with Joint Tenancy. Suppose Mary in our example above did more planning by adding John and Mary’s only son, Josh, as a joint tenant. While this would avoid a will upon Mary’s death, just as it did upon John’s death, it does cause other problems.

Josh could decide to sell half of his holdings. Of course, Mary says he would never do that. He probably won’t do it voluntarily. However, suppose Josh is sued and they get a judgment against him. They can fulfill it in exchange for any of his assets, including his equity stake in the property he owns in joint tenancy with Mary.

Therefore, in addition to the risk of Josh not cooperating or making Mary’s life difficult, his actions could cause Mary to lose half of the property in Josh’s name to Josh’s creditors. While Mary was trying to save a little money by putting the property in Joint Tennessee, she put her future in jeopardy.

If John and Mary had used a revocable trust in place of the joint tenancy, the estate would have avoided a probate. If Mary had not compounded the problem by trying Joint Tenancy with Josh, she could have avoided losing half the property to Josh’s creditors.

Speak with a qualified estate planning attorney about the best way to plan your situation.

Stephen C. Hartnett, JD, LLM
Education Manager
American Academy of Estate Planning Lawyers, Inc.
9444 Balboa Street, Suite 300
San Diego, CA 92123
Phone: (858) 453-2128
www.aaepa.com

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