Mrs. Jones came to see me after the death of her husband because she wanted help on the distribution of his property. She had gone to her bank to withdraw one of her CDs (certificates of deposit) in the name of both her and her husband. The bank officer stated, “Since your husband has died, we can’t release these funds to you without a court order.”

Warning! Joint Tenancy May Not Mean Right of Survivorship

Although the account was in both their names, it didn’t specify right of survivorship. That’s the first problem with joint tenancy: The belief that the right of survivorship exists just because both names are present on the document; the ownership must actually indicate a right of survivorship.

If you own real estate, you may be familiar with joint tenancy property. Deeds for married couples show the owners as: “John Doe and Jane Doe, as husband and wife, as joint tenants with right of survivorship and not as tenants in common and not as community property.” This means that in the event of the death of either person listed on the document, the property automatically passes to the survivor. No probate is involved.

That’s the upside to what’s known as right of survivorship. It eliminates probate on the death of the first spouse. In those instances, in the event of the death of either spouse, it’s better to own property in joint tenancy with right of survivorship than to have that property become subject to a will and therefore pass through a probate process.

Revocable Living Trusts Eliminate the Dilemmas

Listen closely; Revocable Living Trusts can remedy problems that are inherent with joint tenancy of property, right of survivorship, and community property. Although some people use joint tenancy to avoid probate, the problems associated with wills and the probate process can still catch up with them. However, property in joint tenancy doesn’t avoid probate in these two events: a common disaster in which both parties are killed or after the death of the second spouse. In both cases, the assets must go through probate. Only a revocable living trust bypasses the delays and costs of probate.

Beware of Solutions That Create More Problems

Next, she brought out three deeds to her residence. The first deed showed that she and her husband had owned the property as joint tenants with right of survivorship. It sounded good.

However, in 1981, they had transferred the property out of their names to a third party and then back into their names. (This is called a straw-man transfer and is often used to create a new or different type of property ownership.) Unfortunately, they transferred the property back as community property.

Mrs. Jones didn’t remember much about the transfer. She only knew that, in 1981, she and her husband became involved in an investment they thought might increase the size of their estate. To reduce capital gains taxes on a future sale, their attorney had recommended they take their property out of joint tenancy and title it as community property.

The couple hadn’t realized that community property doesn’t avoid probate. The attorney should have recommended they use a revocable living trust. (Currently, a new method to hold title is available: community property with right of survivorship. But this wasn’t available at the time.)

It’s uncomfortable to tell a widow that her recently deceased husband’s estate now owned half of her residence. We had to probate this estate to transfer half of the residence to her, the only heir of the estate. I was glad for Mrs. Jones that her case took the shortest amount of time I’d experienced to complete a probate: only five and a half months. Mrs. Jones came back to see me after the probate process was completed. She was determined that, upon her death, all her assets could be distributed to her children without having to go through probate. She wisely transferred all her assets to her own revocable living trust.

Be Prudent and Review Your Documents

Do you know how you hold title to your properties, CDs and bank accounts? Review your documents and then make an appointment with your estate planning attorney to re-title or best of all, create a revocable living trust.

Copyright 2007, Legal Awareness Series, LLC-All Rights Reserved

Visit http://www.WillsvsTrusts.com for more tools and tips on Estate Planning. Steven W. Allen has been a practicing Estate Planning attorney for over 30 years and is the author of four books including the just published “You Can’t Take It With You… So How Will You Leave It Behind?”. Go to Estate Planning Doctor to get your copy with over 50 free estate planning tools and action items.