There are essentially five ways an individual can transfer property to their loved ones upon their death. Depending on the age of the persons who will be receiving property or the dynamics among family members who are receiving the property, it is important to choose your method of transfer very carefully.
Leave Property Titled Solely in Your Name (i.e. do nothing to plan for property after your death) – If you do absolutely nothing to pre-plan for the transfer of your assets and your property is titled solely in your name at the time of your death, your property will need to be “probated.” This means that a court will order your property to be divided among your surviving relatives according to the probate laws of your state. Basically, the courts, via state statutes, provide who your property will pass to upon your death. It usually takes about nine months or longer (sometimes probate can last for years) before all of your assets are distributed (obviously the length of the proceedings varies greatly depending on the circumstances).
Establish a Last Will and Testament – Establishing a Last Will and Testament allows you to provide written instructions on how your property is to be divided upon your death. In your Will, you designate an “executor” of your estate, who opens a probate estate. With the close supervision of the court, your executor will distribute your property as you have outlined in your Will. The process of probating your Will usually takes a minimum of nine months (again, the length of probate proceedings varies greatly). A Will can be advantageous as a court becomes involved in the distribution of your assets to ensure family dynamics do not affect your testamentary wishes. However, the court and attorney costs involved in a probate proceeding can be substantial.
Add a Joint Owner with Right of Survivorship to Your Property – Adding a joint owner with the right of survivorship to your property (a joint tenant) will pass 100% of that property to the joint owner upon your death. There is no probate necessary. This is often the way spouses choose to title their property, however, in a community property state such as California, this may result in the loss of a substantial income tax advantage to the surviving spouse (basis being stepped up only on one half). Joint tenancy held with persons other than a spouse can also be a problem. For instance, if a child is added to an account and that child is later sued (divorce, car accident, etc.), part or all of that account may be subject to the lawsuit and the parent may be left with no recourse. Joint tenancy “overrides” any Last Will and Testament you may have executed. (For more information, request our report, “The Trouble with Joint Tenancy”).
Add Beneficiary Designations to Your Property – Adding a beneficiary designation (pay-on-death or transfer-on-death) to your retirement accounts, insurance policies, or real or personal property is another way to avoid probate. Again, 100% of your property passes to the person(s) you have designated as beneficiary. Unlike a joint owner, however, the beneficiary has no access to your property until you have passed away, thus avoiding any attachments of your assets by the beneficiary’s creditors. Like joint tenancy, however, the beneficiary designations “override” any Last Will and Testament you have executed, and there is still no one who has authority to use these assets for your benefit in the event of your incapacity.
Establish a Revocable Living Trust – A Revocable Living Trust is an estate planning document which allows an individual to direct another person (the Trustee) to distribute property upon their death, according to specific wishes. Unlike a Will, however, a Revocable Living Trust is not probated. In addition to avoiding the time and expense of a court proceeding, the benefits of a revocable living trust are numerous: it ensures that your financial affairs remain private (as court records are open to the public); it allows an individual to retain control over their property while they are alive; a living trust can incorporate planning in the event you become incapacitated; and a living trust can result in estate tax savings if your account is over the estate tax exemption amount.
Before adding anyone to your accounts or drafting any estate planning documents, you should contact an experienced elder law attorney who can advise you on the advantages and the pitfalls of the various methods of transferring your property at death (including Medi-Cal’s Estate Recovery practices).
ABOUT THE Litherland, Kennedy & Associates, APC, Attorneys at Law
Roy W. Litherland is an attorney whose practice emphasizes elder law and estate planning. Roy has practiced law in the greater Bay Area for over 35 years and is certified as a legal specialist in Estate Planning, Trust and Probate Law by the California State Bar Board of Legal Specialization. In addition to his extensive legal background, Roy was also previously licensed as a Certified Public Accountant. Although Roy has an extensive background in accounting, he retired his license to practice as a CPA to devote his time and energy entirely to the practice of law, specializing in estate planning, trusts, Medi-Cal planning, and probate. Roy is a noted speaker on living trusts, Medi-Cal Planning, and estate planning. He is a member and designated Fellow of the American Academy of Estate Planning Attorneys, an organization that fosters excellence in estate planning.
The Litherland, Kennedy & Associates, APC, Attorneys at Law is a member of the National Academy of Elder Law Attorneys and the California Advocates for Nursing Home Reform.