Trusts and Estates Blog

How Should You Hold Title to Real Estate?

family in front of homeYour home is probably the most valuable asset you own. Yet most people don’t think about how to hold title until the title company poses the question when you buy or refinance. But this deserves careful consideration, because how you hold title to real estate has far-reaching effects. Let’s look at some common ways to hold title.

Individual Name: You can hold title in just your name even if you are married. However, there are some drawbacks you should know about.

First, what would happen if you become mentally or physically incapacitated due to illness or injury and the property needs to be refinanced, or a line of credit needs to be opened or increased? If you are unable to conduct business, the court will need to appoint someone to act for you.

“But, I have a will,” you say. A will can’t help; it only goes into effect after you die, not if you are incapacitated.

“But, I have a power of attorney,” you say. Most powers of attorney end at incapacity. A durable power of attorney is valid at incapacity. However, many financial institutions will not accept one unless it is on their form. And if accepted, it may work too well, giving the person the ability to do whatever he or she wants with your assets. You could recover to find the property mismanaged or even sold and the proceeds gone.

The court’s job is to provide supervision to protect your assets. But once the court gets involved, it will stay involved until you recover or die. The court, not your family or friends, will control how your assets are used to care for you. It is a public process that can be expensive, embarrassing, time consuming and difficult to end if you recover.

Next, what happens when you die? If yours is the only name on the title, the property will almost certainly have to go through the probate court system before it can be distributed to your heirs, even if you have a will. Think about it: if your name is the only one on the title, and you have died, you can’t sign your name to transfer title. While there can be exceptions, in most cases the only way to remove your name and put the new owner’s name on is through the probate court.

Joint Tenants with Right of Survivorship: This is how most married couples hold title, because it seems fair, it’s easy and it’s free. Parents and their adult children also often hold title this way, as do unmarried couples.

Indeed, when one owner dies, full ownership does transfer automatically to the surviving owner without probate. But usually this just postpones probate. If the surviving owner dies without adding another owner (which often happens), or if both owners die at the same time, the property will almost certainly have to go through probate before it can go to the heirs.

There are other problems, too. When you add a co-owner, you lose control. With real estate, all owners must sign to sell or refinance. If your co-owner disagrees with you, you could end up in court. If your co-owner is incapacitated, the court will probably get involved to protect your co-owner’s interest…even if the ill owner is your spouse.

You expose the property to your co-owner’s debts and obligations; you could even lose your home to your co-owner’s creditors if he or she is successfully sued. There could also be gift and/or income tax problems if your co-owner is not your spouse.

Finally, because a will does not control jointly owned assets, you could disinherit your family when your co-owner inherits your share. Sadly, and all too often, children from a previous marriage are disinherited when a new spouse is the surviving owner.

Tenants-In-Common: With this kind of ownership, each owner’s share will be distributed as directed in his or her will. If there is no will, the property will go to the owner’s heirs.

Community Property: Nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) have a form of joint ownership between spouses commonly called community property. When you die, your share of community property automatically goes to your surviving spouse, unless your will says otherwise.

The problem with both tenants-in-common and community property is that you could find yourself with several new co-owners when your co-owner dies and the heirs inherit the property. Imagine how difficult it could be to get several owners to reach an agreement, especially if you are trying to sell the property.

You can also run into the other problems (incapacity, lawsuits, etc.) as explained under joint tenants with right of survivorship, but with several owners involved, your risks and problems are multiplied.

Tenants-by-the-Entirety: This form of joint ownership, available between spouses in some states, is similar to joint tenants with right of survivorship in that when one spouse dies, his/her share automatically goes to the surviving spouse, even if the will says otherwise. So you have many of the same risks, including unintentional disinheriting and court interference if one spouse becomes incapacitated.

However, as tenants-by-the-entirety, neither spouse can transfer his/her half to someone else without the other’s approval – something joint tenants with right of survivorship and tenants-in-common can both do.

Revocable Living Trust: When you have a living trust, the title of your real estate can be held in the name of the trustee of your trust. Usually you will be your own trustee, so you keep full control of the property. You can buy, sell and refinance real estate just as you can when the property is not in your trust.

If you become incapacitated, the successor trustee you named when you set up your trust will be able to step in and act for you. Because the title is no longer in your individual name (or joint names if married), there will be no need for court interference. (If you are married, you and your spouse can be co-trustees, in which case your successor trustee would step in only after you have both become incapacitated or have died.)

Your successor is legally obligated to follow the instructions you put in your trust. If you recover, your successor simply steps aside and lets you resume control. When you die, the property will be distributed without probate according to the instructions in your trust, so you don’t have to worry about unintentionally disinheriting someone.

SUMMARY: How you hold title to real estate should be given careful consideration. Check your titles and make any changes now while you can.

If you would like more information concerning holding titile to real estate, or any other aspect of estate planning, visit www.EstatePlanningSpecialists.com today. www.EstatePlanningSpecialists.com is a comprehensive online resource for estate planning and related issues. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve clients with the creative, effective and custom solutions they demand.

How Can I Prevent My Children from Fighting Over My Belongings After I Die?

You probably own some items of real or sentimental value (jewlery, antiques, art, heirlooms, furniture, clothing, etc.) that you want a certain child, grandchild, special friend, relative, or organization to have after you die.

Or maybe you just want to provide for some orderly way for your belongings to be divided among your heirs after you’re gone. We’ve all heard stories about the heirs fighting over Grandma’s piano or china. The damage is often so deep that sisters don’t speak to each other for the rest of their lives!

Here are some suggestions that can help you prevent this from happening in your family.

Make A Special Gifts List: If you have a living trust, you can make a list of these special gifts and whom you want to have them. Date the list, have it notarized (or witnessed; your attorney can tell you which is appropriate in your state) and keep it with your trust document. If you change your mind, just make a new list and have it notarized. To prevent disagreements about your intentions, be very specific. If your list is long, make a separate list for each person. If your estate is sizeable or if a gift is of substantial value, have your attorney review your list to resolve potential tax issues.

If you have a will, your special bequests will be listed on a codicil prepared by your attorney. If you want to make a change, your attorney will need to prepare a new codicil. (There’s one often overlooked advantage of having a living trust.)

Ask What They Want: Ask your children and others if there is something of yours they would like to have. There may be an item that has special meaning to someone that you aren’t even aware of. Wouldn’t it be nice to know that?

Make gifts now, especially if it is something that you no longer need, or if you are concerned there might be a problem later on.

Hold a family “sale” now, while you can provide information and referee. Gather your kids some weekend or holiday and have them take turns selecting items they want. If one item proves popular, let them bid against each other or make trades. Then write up a list for each person. What doesn’t “sell” to family members can be sold in an estate sale after you die and the proceeds divvied up. (If your family is reluctant to do this, tell them you’ll leave instructions for everything to be sold after you die.)

Write a description, especially if it has sentimental value or is a family heirloom. How else will they know this turkey platter belonged to your favorite Aunt Jessie and that one was picked up at a garage sale?! If the item is large enough, label it.

Business Owners: Have You Planned Your Exit?

You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?

According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.

Who could take over your business? You may have more choices than you think.

Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.

Depending on your financial needs, you can gift and/or or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.

Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.

Business partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.

Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.

How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.

Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.

A good business succession (exit) plan should also provide for the possibility of a long-term illness or disability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.

No Contest Clauses in Wills – When a Creditor Files a Claim

A no contest clause traditionally consists of specific language included in a California will or trust that attempts to prevent any legal dispute against the will after the testator has deceased. A no contest clause, for the most part, does help to discourage legal disputes over a will, except in cases for which the contesting party can offer significant proof of forgery, duress, or problems with validity of the instrument. For most no contest clauses, the language specifically states that any beneficiary of the will stands to be disinherited should he or she decide to pursue unjustifiable litigation in dispute over some aspect of the provisions of the will.

There are, however, certain exclusions to the enforcement of no contest clauses, including among others, when a creditor files a claim against the estate of the testator. Unless the language of the no contest clause specifically includes the circumstances of a creditor filing a claim, the act of doing so would be considered an exclusion to the clause, and therefore, a legitimate reason for a beneficiary to file a dispute without running the risk of losing his or her inheritance.

Many California wills now include standard no contest clauses that include specific language relating to when a creditor files a claim against the estate after the testator has deceased. If so, the validity of such a clause might still be brought into question, and recent California legislation has paved the way for making the entire no contest clause invalid, regardless of the language included within it.

Since the new legislation will not go into effect until 2010, and although the bill will be retroactive for California wills that are currently being drawn up, it is still a good idea to include a no contest clause within your will that includes language relating to when a creditor files a claim against your estate. In this case, a little defense is better than no defense at all, and your estate has a better chance of being legally protected (at least, for a short time) with such a clause.

If you have additional questions concerning no contest clauses, or the California legislation changes surrounding them, a qualified California estate lawyer will be able to give you the best advice concerning the inclusion of a no contest clause in your estate planning options. A highly skilled California estate attorney, with experience in litigating no contest clauses in California, can offer you educated solutions to all of your estate planning needs.

Kevin Von Tungeln is the Managing Partner of EstatePlanningSpecialists.com and Thompson Von Tungeln, P.C. Kevin practices in the areas of estate planning, probate, wills, and trust administration. Visit http://www.EstatePlanningSpecialists.com or http://www.linkedin.com/in/kevintungeln

Why Preparing an Estate Tax Plan is Critical

Specialists in Finding Hidden Estate Plan Issues

What Women Need To Know Before They Are Widows

This applies to both men and women, but I titled this the way I did since men die first about 75% of the time.

Animals have these advantages over man: they never hear the clock strike, they die without any idea of death…their funerals cost them nothing, and no one starts lawsuits over their wills. – Voltaire

The following is a short list of the minimum information married couples need to be aware of in order to protect each other when one spouse dies.

a. One spouse typically handles all of the finances in the house, and it is not always the man of the house.

b. About 74% of the time, the husband dies first. Look at any senior ministry in any church or visit a nursing home if you want to verify this fact. Both overwhelmingly consist of women. (In fact, if this were the only guide, one would conclude that men die first at least 90% of the time!)

c. Organize and discuss all of your finances to protect your spouse if you die first. Make sure your spouse knows where everything is and put this in writing! Do not forget to make note of all the bills that come each month.

d. If you pay the bills, have your spouse pay the monthly bills at least once. Losing a spouse is bad enough. Trying to learn how to pay the bills right after your spouse has died is awful.

Failing to Designate Beneficiaries on Assets

There are many ways in which hiring an estate planning attorney can help you to navigate the often treacherous landscape of estate law. One in particular is in understanding the necessity of designating beneficiaries for all of your accounts.

Regardless of how polished your Will might be, or how clearly you have designated and divided your estate among your loved ones, failing to ensure that the right beneficiaries are noted on your retirement and investment accounts could critically disrupt your carefully-laid plans.

If you have created a Will or revocable trust, then you are already taking the right step in securing your family’s financial future in the event of your death.

However, what many people do not realize is that much of their wealth is tied up in retirement and investment accounts – each with their own rules for distributing those assets when the owner (you) can no longer claim them.

If you own such accounts – as most people do – it is important that you sit down with a qualified estate planning attorney and ensure that your desires that are outlined in your Will are reflected in the beneficiary designations of your accounts.

- Contact your account holders, especially those of accounts that have been established for quite some time, and inquire about the beneficiaries listed.

- Discuss with your lawyer the proper methods for changing beneficiaries to reflect the desires you have laid out in your Will.

- Include Life Insurance accounts, bank/savings accounts, investment portfolios, 401k accounts, or any account that requires a noted beneficiary. Your estate planning attorney can help you identify those accounts.

- Discuss with your lawyer the possibility of additional taxes that may be added to your assets if beneficiaries are not properly noted.

Often, when people do an inventory of their accounts with beneficiaries, they find beneficiaries listed whom they no longer wish to receive part of their estate (for example, ex-spouses).

In many cases, the beneficiary listed on an account would be given the assets within that account, regardless of what is stated in your Will. Essentially, the laws regarding beneficiary designation often override those regarding the settlement of a Will.

It is, therefore, always a good idea to discuss with your attorney ways in which you can keep your beneficiaries up-to-date at all times, especially when you cross important milestones such as a new marriage, a divorce, the death of a loved one, or the birth of a child.

Whether your estate planning goals are immediate or long-term, a qualified California estate planning attorney will be able to counsel you on the best options available to you to meet your individual needs.

Kevin Von Tungeln is the Managing Partner of EstatePlanningSpecialists.com and Thompson Von Tungeln, P.C. Kevin practices exclusively in the areas of estate planning, probate, wills, conservatorships and trust administration.Visit http://www.EstatePlanningSpecialists.com or http://www.linkedin.com/in/kevinvontungeln to learn more.

How to Give Wealth to Your Children

There are Only Two Ways to Deliver Assets to Your Children:

(1) Outright; and

(2) In Trust.

Outright Distribution. Most estates are distributed outright. The trust terminates on the parents’ death, and the assets are given directly to the children once they have reached some predetermined minimum age (age 18 under California law if the Will or Trust does not specify a later age). This method gives your child’s inheritance no protection whatsoever. It is like delivering their inheritance in the back of an old pickup truck.
Beatup-Pickup-Truck-with-Rust-Spots

A Better Way – In Trust. Allowing your children to inherit assets in trust has tremendous advantages. The advantages are so great, that virtually every wealthy family passes on wealth in trust, and so can you.
Armored truck Cash-in-Transit

(1) Property Inherited “In Trust” has Bullet-proof Protection. Letting your children inherit through an irrevocable trust is like delivering their inheritance in an armored truck. Property inherited “In Trust” can be protected from creditors of your children. These potential creditors that can be protected against include:

• Angry ex-business partners who sue your child;

• Greedy plaintiff’s lawyers who try to go above and beyond the insurance your child carries;

• Bitter, vindictive ex-spouses who are set on destroying your child financially.

• Property inherited “In Trust” can be protected even if your child files for bankruptcy.

(2) Property Inherited “In Trust” Can be Protected From Estate Taxes.

• When your child dies, this wealth is passed on to the next generation free of estate taxes.

• Although there is a limit on what can go into an estate tax free trust like this on your death, there is no limit on how much this trust can grow during your child’s lifetime. In other words, if this trust starts out with $3.5 million, and grows to $100 million when your child dies, $100 million passes to your grandchildren free of estate taxes.

Antelope Valley Estate Planning Law Firm Explains How Family Limited Partnerships Can Protect Assets

Antelope Valley estate planning law firm Thompson Von Tungeln explains the benefits of a family limited partnership to protect assets and reduce estate and gift tax liability.

Antelope Valley estate planning law firm Thompson Von Tungeln explains how a family limited partnership can reduce estate and gift taxes and protect assets of family members from potential claims and lawsuits.

“A family limited partnership is an excellent way to protect assets for several family members in one convenient instrument,” said Kevin Von Tungeln, partner at Thompson Von Tungeln. “Typically family savings, investments and titles to businesses and property are placed into the family limited partnership (FLP). Since the family limited partnership is a separate legal entity and assets are typically held in a trust, it is extremely difficult for claimants and judgment creditors to gain access to assets that are part of the FLP.”

Another advantage is that family limited partnerships give parents and grandparents a convenient vehicle for transferring wealth to their children and grandchildren. The owners of the property can grant shares of the family limited partnership to their heirs through gifting some of their shares in the partnership.

“This is not something that someone wants to try to do on their own,” said Von Tungeln. “The Internal Revenue Service monitors family limited partnerships closely, and has been successful in challenging those established near the time of death for the sole purpose of reducing estate taxes. An estate planning specialist is crucial for properly establishing and operating a family limited partnership.”

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