Friends, family, acquaintances, and the internet are a breeding ground for estate planning myths. These myths can lead to a failure to plan or a plan that fails. To set the record straight, we are dispelling 7 estate planning myths in this three part article.
3. Joint ownership, commonly called joint tenancy, is an inexpensive and easy way to avoid probate. It’s cheaper than using a fully funded revocable living trust. Myth!!!
- Joint ownership means that you could lose your assets. That’s not a good way to avoid probate.
For example, many people think it’s a good idea to put a child’s name on the deed to their house. If the child goes bankrupt, owes back taxes, gets divorced, or is sued, the house can be seized.
If the child becomes a drug addict, alcoholic, or estranged, he may seek to force sale of the house to get to the proceeds.
- You can’t unilaterally change your mind about joint tenancy; it’s irrevocable.
- While a revocable living trust is fully revocable or amendable while you are alive and well, joint tenancy is permanent and irreversible without cooperation of the joint owner.
- There may be adverse tax consequences to the transfer into (and out of) joint tenancy.
Loss of capital gains tax avoidance strategies is a common, and often very expensive, mistake for those that put appreciated assets, such as real estate and investment portfolios in joint tenancy.
- You may disqualify yourself from receiving governmental assistance (i.e. Medicaid) to pay for nursing home care.
The best all around way for most persons to avoid probate (and gain significant additional benefits) is with a fully funded revocable living trust.
4. If I avoid probate, I don’t have to pay federal estate tax. Myth!!!
Your “estate” for probate purposes is NOT the same as your “estate” for federal estate tax purposes.
A person’s probate estate are those assets that are in a deceased person’s name that do not pass by joint ownership or beneficiary designations. Assets held in a living trust also avoid probate.
Just about everything you own or control at your death, whether it is technically in your “probate estate” or not, is subject to federal estate tax, under federal law.
Please continue with part 3 of our 3 part article: 7 Estate Planning Myths.
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