Ways to Avoid Probate

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Joint Tenancy with Right of Survivorship

Property owned in joint tenancy automatically passes, without probate, to the surviving owner(s) when one owner dies. Joint tenancy often works well when couples (married or not) acquire real estate, vehicles, bank accounts, securities or other valuable property together. Setting up a joint tenancy is easy, and it doesn't cost a penny.

In Texas, you need a separate written agreement. To set up a joint tenancy in Texas, all joint tenants must sign an agreement. For example, if you want to create a joint tenancy bank account, specifying your arrangement on the bank's signature card isn't enough. A bank or real estate office should be able to give you a fill-in-the-blank form that will do the trick.

After one joint owner dies, generally all the new owner has to do is fill out a straightforward form and present it, with a death certificate, to the keeper of ownership records: a bank, state motor vehicle department, or county real estate records office.

Joint tenancy is usually a poor estate planning choice when an older person, seeking only to avoid probate, is tempted to put solely owned property into joint tenancy with someone else. Adding another owner this way creates several potential headaches:

• You're giving away property. If you make someone else a joint tenant of property that you now own yourself, you give up half ownership of the property. The new owner has rights that you can't take back. For example, the new owner can sell or mortgage his or her share -- or lose it to creditors.
• You may have to file a gift tax return. If the value of the interest you give to a new co-owner (except your spouse) exceeds $10,000 in one year, you must file a gift tax return with the IRS. No tax is actually due, however, until you give away a large amount (currently, more than $650,000) in taxable gifts. There's one big exception: If two or more people open a bank account in joint tenancy, but one person puts all or most of the money in, no gift tax is assessed against that person. A taxable gift may be made, however, when a joint tenant who has contributed little or nothing to the account withdraws money from it.
• It may spawn disputes after your death. Many older people make the mistake of adding someone as a joint tenant to a bank account just for "convenience." They want someone to help them out by depositing checks and paying bills. But after the original owner dies, the co-owner may claim that he or she is entitled, as a surviving joint tenant, to keep the funds remaining in the account. In some instances, maybe that's what the deceased person really intended -- it's too late to ask. Sadly, this sort of confusion often leads to bitter family rifts, some of which are fought out in court.

In some states, married couples often take title not in joint tenancy, but in " tenancy by the entirety" instead. It's very similar to joint tenancy, but is limited to married couples only. The two forms of ownership are so much alike that it usually makes little practical difference which is used; both avoid probate in exactly the same way.

Community Property

If you are married and live in a community property state, another way to co-own property with your spouse is available to you: community property. In some states, community property doesn't have to go through probate; in others, it does.

If you live in Arizona, Nevada, Texas or Wisconsin, you can add the " right of survivorship" to your community property. Then, when one spouse dies, the other automatically owns the deceased spouse's half of the couple's community property. Transferring title to the surviving spouse is simple. The exact steps depend on the type of property, but generally all the new owner has to do is fill out a straightforward form and present it, with a death certificate, to the keeper of ownership records: a bank, state motor vehicle department, or county real estate records office.

California and New Mexico offer simplified procedures for transferring community property to a surviving spouse, under certain conditions. In the rest of the community property states, community property must go through probate like other kinds of property.

Revocable Living Trusts

Living trusts were invented to let people make an end-run around probate. The advantage of holding your valuable property in trust is that after your death, the trust property is not part of your estate for probate purposes. (It is, however, counted as part of your estate for federal estate tax purposes.) That's because a trustee -- not you as an individual -- owns the trust property. After your death, the trustee can easily and quickly transfer the trust property to the family or friends you left it to -- without probate. You specify in your trust document (which is similar to a will) whom you want to inherit the property.

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