What is a Joint Tenant?
A joint tenancy allows multiple people to share equal ownership on property. You typically see this reflected between husband and wife as joint tenants. People do this primarily because when one person dies, the other automatically inherits the property without the need to go through probate through the so-called "right of survivorship."
The surviving spouse simply needs to file an affidavit of death of a joint tenant and then the property is completely in the surviving spouse's name.
Guess what? Since the property is now once again in the name of an individual, it must go through probate.
Let's look at another example. You want your rental property to be left to your four kids. One of the ways you can do this is to leave to all four of them as joint tenants. Most people think that there can only be two joint tenants, but that is dead wrong.
You can have 10 joint tenants or even 100, but in this example we'll assume 4. The only requirement is they own an equal share. So each of them, Tony, Terry, Tommy, Tessy owns 25% each. What happens if Terry gets in a car accident and gets sued? Her 25% interest is definitely an asset judgment credit is going after, causing the entire family to get involved in an unnecessary drama.
Let's say Tony passes away, then now there are three tenants with 33.33% each, but the joint tenancy is gone. They are now tenants in common.
So if something happens to them, the property will end right back in Probate again, as will the surviving spouse of a joint tenancy.
Why are we trying to avoid Probate? Because Probate is expensive. These are just the ordinary fees. An Attorney can also petition the Court for extraordinary fees for certain tasks as well.
Here are the current rates and they are mandatory fees for ordinary compensation (the Court can also award extraordinary fees on certain activities):
- 4% of the first $100,000 of the gross value of the probate estate
- 3% of the next $100,000
- 2% of the next $800,000
- 1% of the next $9 million
- .5% of the next $15 million
And these fees are completely avoidable. All you need to do is establish a California Living Trust. When you create a living trust in California, you indicate the terms of this distribution right in the trust. You name these 4 people as beneficiaries of the rental home in the trust. Say these are the Smiths. After the living trust is created, it must be funded.
Funding is a fancy term that attorneys like to use, but really just means the title of the rental home (or any property in the trust) is grant deeded from the husband and wife to the trust.
So title goes from: Joe and Jan Smith, a married couple
To: Joe and Jan Smith, Trustees of the Joe and Jan Smith Family Living Trust.
Now when something happens to Joe and Jan, the person they named as their successor trustee in their CA Living Trust takes over. The first thing that successor trustee does is heads down to the County to get a copy of the death certificate and then files that along with an Affidavit of a Death of Trustee at the County Recorders' Office. That's it! No probate. No exposure to lawsuits.
So before you think about using joint tenancy as an estate planning tool, think again, and create a living trust.
Source by Tom M Cox