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Many times people try to avoid probate by holding their assets in
Joint Tenancy. Joint Tenancy is the method of putting your child's
name on property or accounts. Any good attorney or estate planner
should warn you of the possible risks.
If you hold an assets with a child and the child was ever held in
a lawsuit, you could lose your asset. Once you hold the asset in
Joint Tenancy with the child, it is then subject to any judgments
that they may have placed on them.
Property held in Joint Tenancy with a child will lose half of the
stepped-up valuation. Stepped-up valuation is a very important issue
that needs to be of concern. If you bought your home in 1955 for
$25,000 and today your home is valued at $200,000 after your death
your child would only received the original cost basis of $25,000
and not the market value. They would have a big capital gains tax
bill! However, if you would have passed the home to the child in
a Living Trust they would have inherited the home at the market
value and not had a capital gains tax due.
You cannot maintain both federal estate tax exemptions if you simply
hold Joint Tenancy. When one spouse dies, the other receives the
other's share of the estate. If the estate is over $675,000, there
is no proper way to maintain the deceased's exemption, thus "throwing
it away". Probate is avoided after the first spouse; however after
the second spouse dies, the estate has to go through probate and
anything over $675,000 has to be taxed starting at 37%. If you would
have used a trust, you would have avoided probate and been allowed
the full exemption thus avoiding or at least reducing your federal
tax.
If you leave your assets in Joint Tenancy to one of your children.
That one child does not have to honor your will. Because you gave
it to them as a joint tenant they are a legal owner and do not have
to share it with the other beneficiaries of your will.
The Living Trust is a better solution because it will protect your
estate from your children's creditors, avoid probate, maintain the
full stepped up value to your assets, keep both federal tax exemptions,
and pass your estate to your children the way you desire! |
