The Pitfalls of Joint Ownership (Part 2 of 3)*

In Part 1 of this article, we introduced the mechanics and the danger of owning assets as Joint Tenants with Right of Survivorship.  In this installment, we'll begin to take a look at each of the potential pitfalls in more detail.

(1) There is no control, and property may pass to unintended heirs.  Joint tenancy property passes to the surviving joint tenant and no one else, no matter what you do.  If it is your intent to leave your property to your spouse and then to your children, joint tenancy is not for you.

Joint tenancy provides no means of ensuring that your property will pass to whom you want.  For example, if your spouse remarries, your children may inadvertently be disinherited.  Or, against your wishes, your spouse may choose to disinherit some or all of your children after your death.  If you and your spouse die together in an accident, significant questions may arise as to who is going to inherit your property.

While joint tenants are living, they can sell their interest in the joint property, and they can give their interest away.  In this respect, joint tenancy is similar to other forms of ownership.  It is only on the death of a joint tenant that its unique features come into play.

In some states, joint tenancy between a husband and a wife is called tenancy by the entirety.  It works exactly like joint tenancy with right of survivorship, except that it is more restrictive.  While both spouses are alive, the approval of both is necessary before the property can be transferred.

A joint tenant has the authority to take all the money from a bank account and has significant control over other types of property.  This "control" can be dangerous, especially since a deceased tenant would have had no opportunity to leave any instructions restricting the use of the joint tenancy property.

Even though property is titled in joint tenancy, the joint tenant who dies is presumed to own 100% of the property.  As a result, the deceased tenant's family not only loses the property, which passes to the surviving joint tenant), but also must pay all of the death taxes.  Joint tenancy between non-spouses can create the worst possible tax scenario: full taxation on property one doesn't even own.

(2) There are no planning opportunities.  What if your spouse or your children need assistance in managing the property you left them?  Joint tenancy cannot help.  What if you want to leave instructions for your loved ones as to how, when and why your property is to be used?  Joint tenancy offers no opportunity for instructions of any kind.

If you become disabled, your joint tenancy property may be tied up in a living probate while you desperately need it for your own and your loved ones' care.  If your spouse is disabled when you die, the probate court will "inherit" the joint tenancy property and determine how and when it is to be used for your spouse's benefit.

More pitfalls and possible solutions next time in the final installment of this article.

*Adapted from the Planning Partners Press.

The Pitfalls of Joint Ownership (Part 1 of 3)*

Joint property, also known as joint tenancy with right of survivorship ("JTWROS"), is nothing but a planning pitfall.  Although JTWROS has been assailed for years by many estate planning experts, it remains--unfortunately--a very popular form of property ownership.  JTWROS is a pitfall because you cannot control where such property passes after your death.

In joint tenancy, each person owns the entire asset, not a part of the asset.  This legal fiction of two or more people owning 100% of the same asset is derived from the full name given to joint tenancy: "joint tenancy with right of survivorship."  "Right of survivorship" means that whoever dies last owns the property.  The previous joint tenants merely had the use of the property while they were alive.

JTWROS property is "uncontrollable."  Even if a joint tenant intends to have his or her share pass to loved ones, the property is not controlled by the instructions in the joint tenant's will or trust.  JTWROS property automatically passes to its surviving owners by operation of law.

Property that is owned in JTWROS can be a trap--the term itself has nice connotations.  It implies "the two of us," a partnership, a marriage of title as well as love.  On the surface, at least, it appears to be the right way for people who care for each other to own property.  It's psychologically pleasing, which for many people is the real advantage of owning their property jointly.

As with many other latent problems, JTWROS is easy and convenient.  Odds are that when you were married (if you are), one of the first financial actions you and your spouse took was to open a checking or savings account.  The clerk who helped set up your account put it in your joint names when you answered yes to, "Both names on the account?"  The same is true of your first house or your first care. It seems that all of those involved (primarily clerks and salespeople), whether or not they knew what they were doing, took control of your planning and titled your property in joint tenancy.

For most people, the disadvantages of JTWROS far exceed any advantages.  Some of the more devastating pitfalls of JTWROS are:

(1) There is no control, and property may pass to unintended heirs;
(2) There are no planning opportunities;
(3) For married couples, probate is at best delayed, not totally avoided; and
(4) For non-spousal owners, unintentional gift taxes and death taxes can be generated.

In part 2 of this article, we'll explore each of those problems in more detail.  Our goal is to help you gain a clear understanding of why you should avoid titling assets in joint tenancy, and to suggest other ways you might own property that will enable you to maintain the control you desire.

*Article adapted from Planning Partners Press.

TITLE = RESULT: The Importance of Proper Ownership (Part 2 of 2)*

In part 1, we talked about the importance of how property is owned.  The fact is that plan results are tied directly to how assets are titled.  That's why we say, "Title = Result."

In separate property states, such as Arkansas and Missouri, the three primary forms of property ownership include fee simple, tenancy in common, and joint tenancy with right of survivorship ("JTWROS").

We have already covered fee simple, and began a discussion on tenancy in common.  We used the example of you and a friend who own a horse as tenants in common.  We discussed how each of you would own 50% of the horse, and that there is probably no problem with that--unless the two of you have a falling out.

If you can't reach an agreement on who owns the horse, and what one co-tenant is going to pay the other for their half, you are likely to end up in court with a judge ordering a sale.  Other challenges can arise even if you and your co-owner get along fine.  Issues arise if one of you wants to sell your half to a third party, or if one of you becomes mentally disabled.

You can sell your 50% interest in the horse anytime you want, or you can give it away.  Your other tenant cannot prevent either action.  Even if you sell the horse to your friend's worst enemy, your friend cannot do anything about it!  The real problem is getting someone to buy your part of the horse.  This new tenant will have to deal with your friend, and they, too, will have to agree on what to do with the horse.

Disability can be a problem for both you and your co-tenant.  If you are disabled to such an extent that you cannot manage your own affairs, and you have not done proper revocable trust planning, a probate court will likely control your part of the property.  The court may demand that the property should be sold--and your other tenant will have little or no control over the whole process.

At your death, you can leave your share of the property to whomever you want.  Without proper planning, it will go through probate, leaving your other tenant once again under the control of the court.  You may leave your share to several heirs, making life that much more difficult for the other tenant.

JOINT TENANCY WITH RIGHT OF SURVIVORSHIP ("JTWROS") is very common and very misunderstood.  It is routinely used by spouses, but people who are not married use it, too.  Although similar to tenancy in common, JTWROS has totally different results.  If you own property in JTWROS:

(1) You own all of it with someone else;
(2) You can (a) give your interest away or (b) sell your interest; and
(3) You cannot leave your interest on death.

There are so many possible pitfalls with JTWROS that the next article will be devoted to that topic.

*Adapted from Planning Partners Press.

TITLE = RESULT: The Importance of Proper Ownership (Part 1 of 2)*

How you own your property helps determine its distribution when you die, or its use if you become disabled.  It is important to double-check that you own the property the way you think you do.  Planning with property you don't actually own is like no planning at all.

The three primary forms of property ownership include fee simple, tenancy in common, and joint tenancy with right of survivorship ("JTWROS").  In Arizona, we also have community property and community property with right of survivorship ("CPWROS").  Each form of ownership has its own inherent features.  I will save the discussion of the community property concepts for another time.  Today, I will begin our discussion of fee simple and tenancy in common ownership.  

FEE SIMPLE is simple.  You and only you own the property.  Property in fee simple means you own all of it.  You can (1) give it away, (2) sell it or (3) leave it on death.

Is there any pitfall with fee simple property?  Yes.  Property owned in your own name is subject to both a living probate in the case of a disability and a death probate upon death.  In short, what may appear to be maximum control, may actually result in a total loss of control upon disability or death.  

TENANCY IN COMMON means that you and others own part of an asset.  Each "tenant" has less control of the whole property than would one person who owned it in fee simple.  With tenancy in common property, you can (1) give your part of it away, (2) sell your part or (3) leave it at your death.

Tenancy in common requires that you own the property with one or more other people.  Each tenant owns a percentage of the whole asset.  For example, if there are two tenants, each owns 50% of the whole asset.  If there are three, each owns 33 1/3%.  The number of possible tenants in tenancy in common has no limit.

For example, if you and a friend own a horse as tenants in common, you each own 50% of that horse.  But who owns which half?  It really doesn't matter while both of you are alive, healthy, and getting along.  You accommodate each other: each paying half of the expenses and receiving half of any income from trail rides.  You have an agreement about when each of you gets to use the horse.  If you should quarrel, however, problems can arise.  You can't demand your half of the horse.  Very likely, you and your ex-friend will have to sell the horse--if you can both agree on the price and manner of sale.  

In case you and your friend cannot reach any agreement, you can go to court and have the judge sell the horse.  This method is expensive, and odds are you won't get the best price for the horse.  But when tenants in common can't agree, courts are virtually the only recourse available.

Next time we'll continue our discussion on tenancy in common ownership, and introduce the planning pitfalls of joint tenancy with right of survivorship.

*Article adapted from Planning Partners Press.

Patient's Rights: Non-Discrimination in Hospital Visitation

Did you know that there are some hospitals and medical facilities that will keep an unmarried person from visiting his or her partner?  There are.  And, many times it doesn't even matter if the people are in a heterosexual or same-sex relationship.  That's about to change.

On April 15, 2010, President Obama signed a presidential memorandum directing the Secretary of Health and Human Services to implement new rules to ensure that hospitals that participate in Medicare or Medicaid respect the rights of patients to designate visitors, and that such visitors should enjoy visitation privileges that are no more restrictive than those that immediate family members enjoy.

After such rules are promulgated, participating hospitals will no longer be able to deny visitation privileges on the basis of race, color, national origin, religion, sex, sexual orientation, gender identity, or disability.  However, the rules will still take into account the need for hospitals to restrict visitation in medically appropriate circumstances, as well as the clinical decisions that medical professionals make about a patient's care or treatment.

Further, the Memorandum directs that rules be put into place to ensure that hospitals that receive Medicare or Medicaid respect a patient's decision contained in the patient's advanced directives, such as durable powers of attorney and health care proxies, and that the patient's representatives otherwise have the right to make informed decisions regarding the patient's care.

This is great news for unmarried couples, whether they be in heterosexual or same-sex relationships, as well as people who wish to designate someone other than a family member to make their healthcare decisions for them.

To read the entire text of the Presidential Memorandum, click here.

National Healthcare Decisions Day is April 16

Studies show that less than one-third of all adults in the U.S. have a living will or any type of Advance Directive.  National Healthcare Decisions Day (NCDD) began in 2008 as a grassroots initiative to address this problem, by encouraging Americans to express their wishes regarding healthcare and for providers and facilities to respect those wishes. The event's date, April 16th, is no coincidence. Nathan Kottkamp, Chairman of the NHDD initiative, selected the day after "Tax Day" as a tribute to Benjamin Franklin's famous adage: "Nothing in life is certain but death and taxes."

At Kristel K. Patton, P.C., we are committed to helping our clients plan for whatever the future may hold, not just financially but in all matters relating to healthcare.  This is why we have made a living will and healthcare power of attorney part of every client's comprehensive estate plan.  And, why we give our clients who are enrolled in our Empowered Legacy Planning Maintenance and Education process a complimentary membership to the DocuBank Healthcare Directives Registry. This service ensures our clients' healthcare directives and other vital medical information are immediately available to medical professionals and family members 24/7/365 in the event of an emergency.

If you have an existing healthcare power of attorney and living will, we encourage you to review your directives to ensure they still reflect your wishes. Tell your loved ones you have created documents pertaining to your healthcare wishes, so they will have the peace of mind that comes with knowing what to do in an emergency. And, if you are a DocuBank member, carry your DocuBank card in your purse or wallet at all times.

Family Heritage: St. Patrick's Day

The Irish have observed St. Patrick’s Day on March 17^th for more than a thousand years. Traditionally, Irish families would attend church in the morning and celebrate in the afternoon with dance, drink and a feast consisting of bacon (not corned beef) and cabbage. Today, St. Patrick’s Day is celebrated all over the globe. The world’s oldest civilian parade, the New York City St. Patrick’s Day Parade, features over 150,000 participants and is attended by nearly three million people. Boston, Chicago, Philadelphia, Savannah and other cities also host massive parades.

Clearly, St. Patrick achieved an enduring legacy. Yet very little is known about the man himself, what he truly believed and valued most in life. Would he approve of green hats, green rivers and green beer (perhaps consumed with a wee bit too much exuberance)? We simply do not know. And, of course, our firm was not there to help him make his wishes known, by designing a customized estate and legacy plan.

Here at Kristel K. Patton, P.C., we can create such a plan for you and your loved ones. A plan that provides for your financial and healthcare needs today, and ensures you give what you want, when you want, to whom you want… today, tomorrow and beyond. A plan, in short, that protects your loved ones and legacy. It is important to note that for your plan to continue to serve as an accurate expression of your wishes, you should have it reviewed and updated at least every two years, or whenever a significant change takes place in your life or that of your family.

Additionally, if you have a DocuBank membership, we also want to remind you to update your healthcare information with the DocuBank Healthcare Directives Registry. DocuBank makes your healthcare directives immediately available to medical professionals and family members alike in the event of an emergency. In this way, it assumes an important role in preserving your legacy, by helping to ensure that your desires for care will be honored to the letter, and your estate protected against costly “last resort” medical services you may not desire.  If you do not have a DocuBank membership, please contact our firm to see how you can get enrolled.

So this St. Patrick’s Day, don’t just think about whether you should have corned beef or bacon with your cabbage. Think about your legacy and whether or not your estate plan reflects your wishes. If it does not, our firm can help you define your legacy by creating a customized estate plan just for you.