The Will
Many individuals elect to leave their property to their heirs by way of a “will.” Although this may be an acceptable alternative, if your estate assets do not total more than $100,000, or if you DO NOT own real estate, please keep in mind that a will must be probated and in order to pass title of your property to your heirs, it will require a court order. Consequently, the cost of probate, as discussed more thoroughly elsewhere in this website, may be considerable, which may indicate the advisability of using a trust, rather than a will.

Joint Tenancy
A considerable number of individuals hold title to their real property in “joint tenancy with right of survivorship.” This is usually done between a husband and wife. Holding title to real estate in this manner will assure that upon the death of the first joint tenant, title will pass to the surviving joint tenant, which process can be perfected with a minimum of effort and cost. However, problems start to arise when the surviving joint tenant wants to then pass title to his or her heirs, usually the children.

It is not always advisable to hold title in joint tenancy (with right of survivorship) with your children, or anyone you may want to pass title after your death, for several reasons:

1. If you add your child(ren) as joint tenants on your title, and, for example, your child is married, you could find yourself embroiled in litigation if your child’s spouse decides to get a divorce and seeks a “community property” interest in your home during the divorce proceedings. You could conceivably end up with your son or daughter’s spouse as a part owner of your home. That is not a very pleasant thought for many parents.

2. A second common reason for avoiding holding title to your property in “joint tenancy with right of survivorship” (unless, of course, the joint tenant is your spouse) is if the joint tenant experiences financial problems. Often, children who are “joint tenants” with their parents may find themselves in financial trouble, in which event their creditors may look to the child’s interest in your home to satisfy the creditor’s claim or judgment. Being forced to sell your property because of the debts of your joint tenant is, again, not a very pleasant thought.

Of course, there are numerous other situations wherein “joint tenancy with right of survivorship” would not be in your best interests and where a revocable trust would serve you far better.

Miscellaneous Issues
Following are other issues that are related to your estate planning needs.
Partnerships and Corporations
There are situations in which the formation of a partnership or a corporation would be advisable. If you have questions about this area, you should obtain legal and tax advice.

Bank accounts
One technique for the transfer of assets is through bank accounts. You can put your funds in a joint account with another person and upon your death, that person will have the right to the funds in that account. This is a specialized form of joint ownership. For tax purposes, all those funds will be regarded as included in your estate, however.

Another method of using a bank account to transfer assets is to establish an account for the benefit of another person. In the law these are known as Totten Trusts. For example, an account “Mary Smith for the benefit of “Nancy Jones” can be managed by Mary during her lifetime and the funds would go to Nancy upon Mary’s death. Again, these funds will be included in Mary’s estate for estate tax purposes.

Insurance Policies
Life insurance policy proceeds are not subject to probate except where you name your own estate as the beneficiary. The purchase of a policy of life insurance, therefore, can allow for the transfer of substantial amounts of money without the need to pass it through probate. These funds are usually available fairly quickly in contrast to property in probate.
Life insurance proceeds will usually be included in determining the size of your estate for estate tax purposes. For example, if you own a life policy that pays a $500,000 benefit, that will be added to your gross taxable estate. Therefore, if you have other assets worth $150,000, your estate could be subject to estate taxes.

If however, you neither own the policy nor have any means of exercising control over it, the policy will not be included in your taxable estate. For this reason, some people purchase a life insurance policy on their life, transfer ownership over it to another person, and then make annual gifts of the amount of the premiums on the policy. This will effectively transfer substantial assets upon death without either probate or estate taxes.
There are a wide variety of forms of life insurance on the market today and you may want to investigate your options as a part of an overall financial plan.

Additionally, life insurance policies may provide for current income to you now if you are disabled with AIDS. There are a number of companies that will in effect buy out the policy’s benefits to provide you with cash now. Most insurance companies will do this as well.

Gifts
Especially where you face life-threatening circumstances, a gift to people you would want to have a particular item or a certain amount of money after your death may be appropriate before you die. Property transferred by gift avoids probate. A gift does not, however, remove the transferred asset from your estate for tax purposes.

Remember to do anything needed to complete the gift. This may mean formally transferring title by deed, pink slip or other means. At the very least, it means relinquishing control over the item to the person you are giving it to. Where no document of title is needed, write out a letter indicating the specific things being given and have it notarized if possible.

Note that there may be tax consequences connected with gifts. Gifts in excess of $11,000 per person per year require a federal gift tax return. Gifts during your lifetime in excess of $11,000 per person per year are accumulated for purposes of determining the $1.2 million threshold for estate tax purposes. This can be, however, a viable means of distributing one’s estate and avoid probate.
When combined with insurance policies, it can provide for a very large tax-free gift. For example, if you purchase a policy of insurance on your life, the value of it is normally included in your taxable estate, whether you pass the proceeds through your Will or not. However, if you transfer ownership of the policy to another person, and retain no ability to change beneficiaries or otherwise control the policy, it will not be part of your taxable estate. You can then make a gift each year of the amount of the premiums to the person to whom you gave the ownership of the insurance policy. Then, upon your death, that person or the beneficiary of the policy will get the value of the policy tax-free.

See an insurance specialist, attorney or financial planner for more information about how this can work for you.

Issues Regarding the Revocable Trust
A Living Trust does not have to go through the court probate process. Assets can be distributed immediately and you can determine what, if anything, the person administering your estate should be paid for their services in your trust.

There are some disadvantages to living trusts. Since they are not supervised by the court, there is no guarantee that your estate will be properly handled. There is, however, a procedure for beneficiaries to bring the process before the court should the need arise.
Additionally, the creditor protection available through probate is not available with trusts. Your successor trustee must make certain that all your proper debts are paid before distribution or creditors retain the right to collect from persons who inherit from you after distribution.

Basically, if you have a person who you can trust to follow your wishes, who is capable of handling the required transactions and who has the time and patience to take care of these matters, you may wish to consider using a living trust.