Several months ago, I mentioned some essential elements to an estate plan. Those elements are the items that any estate planner should discuss with you and help you implement. Some of the items in that list are designed to simply transfer wealth. Others have multiple uses. For example, the trust can be used to avoid probate.
The elements in that list are not the only tools that can be used in estate planning. Before the Deficit Reduction Act of 2005 went into effect, a common method of avoiding probate was to place large assets into what is called a life estate. This was done because, at that time, a life estate also provided some amount of long-term care planning. We’ll talk about what a life estate is next time.
Another method of avoiding probate is to hold assets in joint tenancy. Joint tenancy exists when two persons are listed as joint co-owners of an asset. In Iowa, most attorneys create joint tenancies with the phrase “as joint tenants with full rights of survivorship and not as tenants in common.” This means that each of the two (or more) owners automatically takes full ownership of the asset when the other dies.
Joint tenancy has other consequences too, however. If you own an asset in joint tenancy, each owner has the right to access the full value of the asset. For example: if you make your son-in-law a joint account holder on your checking account, he can write checks and withdraw funds without your approval. A joint owner of a piece of land may legally borrow against the full value of the land without your consent.
Here’s the upshot: if your advisor suggests creating a joint tenancy, ask them about the risks before you dive in headfirst.
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Lawyer Joke of the Day:
A doctor was vacationing at the seashore with his family. Suddenly, he spotted a fin sticking up in the water and fainted.
"Darling, it was just a shark," his wife assured him when he came to. "You've got to stop imagining that there are lawyers everywhere."
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