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Joint
Tenancy is it right for you? Probably not!
You have achieved successful estate
planning when you know that your assets will be passed on to who you want to
receive them, when you want them to be received and how you want them to be
received and without your heirs experiencing excessive costs, taxes and delays.
There are three ways
assets are transferred to heirs at death:
-
probate court
-
operation of law
-
a trust
Probate court should always be avoided simply because the costs and
fees are unnecessary and do not serve a worthwhile purpose. Your heirs should
receive your money not the courts and lawyers. Also, because of the considerable
amount of time it takes to
probate,
there is a delay in the transfer
of your assets to your heirs
Transfer by operation of law is accomplished primarily by joint
tenancy or by the naming of a beneficiary. An excellent estate planning method,
which is highly recommend, is naming beneficiaries on your life insurance and
qualified retirement plans (401(k), (etc.). If you are considering or have joint
tenancy be aware that there are too many overall problems for it to be a
highly-recommended estate planning device.
Yes, joint tenancy works well when the first spouse dies.
It is fast and completely avoids probate. But, in reality, probate has only been
deferred not avoided. When the second spouse dies, the total estate will be
probated. Often probate will occur many years after the death of the first
spouse. Probably the assets in the estate have appreciated significantly since
their origination. A snowball effect has occurred. Because your heirs will have
to probate your estate, they will not receive its total value. Is this really
what you intended?
Furthermore, joint tenancy has many other problems.
If your children or other heirs are named on the title to your home, savings
accounts, etc., you may have created a taxable event. Gift taxes are owed in the
year you add their names to any of your assets that have a value of over
$10,000. Also to be considered is the fact that the persons named now actually
are co-owners of your house, savings accounts, etc. If they are sued, file for
bankruptcy or get divorced, your assets would be listed as part of their
holdings. In other words, their creditors would have access to your possessions.
Again, is this really what you intended? I do not think so! Certainly the
thought never crossed your mind that the possibility of losing your home or
other possessions could occur because of their actions.
After
reading the above possible scenarios, your question should be: "What can I
do to prevent the above from happening?". The answer is very simple; it is a Living
Trust. A properly-funded
Living Trust, legally and completely avoids probate. It transfers your
assets immediately, without delays or costs. A Living Trust also allows your
assets being transferred by beneficiary status to pass as fast as the necessary
paperwork is completed. Surely not anywhere nearly as long as going through
probate. The unintended mistakes of joint tenancy will also be avoided. Your
goal of transferring your estate to who you wanted, when you wanted and how you
wanted will be accomplished. You will have given your hard-earned money to your
heirs, not others.
Living Trusts can be drawn
up for between $695 to $1,495. Some people think this is an outrageous cost.
They should remember that this Trust will pay for itself through the money saved
by avoiding probate. Probate costs are usually 3% - 10% of your gross estate.
For example, if your home is worth $150,000, you have saved $100,000 for your
retirement (pension plan and savings) and have personal property valued at
$25,000 (which is a low figure considering most families have two vehicles
today), your gross estate would be valued at $275,000. Based on a probate cost
of only 3%, your heirs would pay $8,500 to probate your estate. If the costs are
10%, they would pay a whopping $27,500! Why would anyone not want to give this
money to their heirs?
After reading this article, I
hope you will agree that $1,495 is not a fortune to pay for the advantages a
Living Trust has over common wills, joint tenancy or named beneficiaries. If you
do not have a Living Trust, contact
a qualified estate planner to draw one up for you.
Feel free
to Contact
Us if you have any questions.
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