Wills & Trusts
Joint Tenancy is a method of owning property which enables a person to hold property with one or more other persons in a manner in which the property will be owned by the survivor(s) of the Joint Tenants. That is, assume a husband and wife hold the title to their house as Joint Tenants [assuming no other state title statutes may apply for this example]. The Joint Tenancy manner of holding title essentially means that on the death of the first person, the house would then be owned outright by the other, if they were to be living at the death of the first.
While this seems to be the easiest manner of passing title, several problems commonly arise. First, there is no provision for the disposition of the property if both die at the same time. Many people with normal size estates assume that since they hold the property in Joint Tenancy, they do not need a will. Obviously, they are overlooking completely the possibility that both spouses may die at the same time.
Another common mistake is to fail to understand that Joint Tenancy gives no rights to anyone, in most cases, other than the other Joint Owners. That means that if you purchase a house with your sister, for example, before you get married and have children, your children or your spouse will, under most state laws, not have any interest in the house.
Assume your sister marries a person who never holds a job and basically may not have all the financial management skills which you deem necessary. Should you die suddenly, your sister would own the property outright, without even a single dollar being passed to your spouse or your children. Of course, there are exceptions to this situation and you should consult a lawyer to determine exactly how to handle it should it happen to you. However, this model does offer an example of what to consider in trying to prevent these problems from ever arising.
Another problem is if the property held in Joint Tenancy has appreciated substantially since it was purchased, several tax principles will be involved. These are beyond the scope of these materials, but you should check with an attorney or an accountant as to whether there is a need to consider the basis of this property and how such a distribution would affect the cost basis of the property for tax purposes.
In short, Joint Tenancy may be a great way to transfer property, since the disposition on the death of one of the Joint Tenants is passed without any probate court. However, there are significant disadvantages, which may make other means of property transfer better vehicles for ensuring that your own relatives receive your estate.
Life Insurance Or Pensions
Typically, subject to both state and federal laws, life insurance proceeds are paid directly to the named beneficiary(ies) in the policy. Similarly, pension benefits can be paid to named beneficiaries. However, there are many instances where each, or both, of these assets may have a community property aspect to them, and naming a person other than one's spouse might not be effective under every state law. See Marital Issues. In most cases, this is a complicated area requiring the assistance of an attorney.
There are many kinds of trusts, and many are extremely complicated and expensive. These are beyond the scope of this discussion. The next section, however, will discuss basic Trust principles and some considerations in deciding whether you ought to prepare a Trust.