WILLS, TRUSTS, JOINT PROPERTY AND YOUR ESTATE PLAN
By Ronald H. Greve, Esquire
There are basically four methods to pass property to your heirs at your death. They are: WILL, TRUST, JOINT OWNERSHIP and BENEFICIARY DESIGNATION. All four of these methods operate largely independently of each other.
You need to understand the consequences of using joint ownership or a beneficiary designation when you also have a Will or Trust. For example, it is possible to completely nullify your Will or Trust by adding a child’s name to your bank accounts.
There is no “right” or “best” method that applies to every person. That depends on your personal circumstances and preferences. An intelligent mix may be the best solution for you.
A Will is a document that directs the disposition of your property after your death. A Will is not registered or recorded anywhere, and can be changed any time before your death, as long as you are mentally competent. A Will does not transfer any enforceable legal right to your heirs as long as you are alive. A Will is also completely private; no one needs to know specifically what is in your Will until after you are dead.
Wills do NOT avoid probate. Also, you DO have a Will whether you know it or not. This is known as intestate succession; the legislature has set up arbitrary rules as to who gets your property if you do not have a Will.
You should have a Will even if you have made other arrangements for distribution of your property. A Will is the most common way to name a guardian for your minor children. A Will also acts as a back-up to all your other planning techniques.
A Trust is a legal arrangement where you transfer your property to a TRUSTEE, who manages the property according to the terms of a contract known as a TRUST AGREEMENT.
There are many kinds of Trusts, but the most commonly used is the REVOCABLE GRANTOR TRUST, also known as a LIVING TRUST (not to be confused with a Living Will). In this case the Grantor (you) reserves the right to revoke or amend the Trust at any time. The Grantor usually serves as the only Trustee.
The main advantage of a Trust is that the Trust continues to exist even after the Grantor dies or becomes disabled. This is because the Trust Agreement provides for a Successor Trustee, who automatically takes over management of the Trust upon a specified contingency, usually death or disability. The Successor Trustee, then, either distributes the Trust assets to your beneficiaries, or continues to manage the assets for as long as you direct in the Trust Agreement. This is all done without court supervision and there is no probate.
A Trust can avoid the need to appoint a Guardian or Conservator should you become disabled. That is because the Trust, and not you as an individual, actually owns your property. The Successor Trustee just steps into your shoes and takes over management of your affairs.
Joint ownership comes about when two or more names appear on the ownership documents along with the words, “Joint Tenants”, “Joint Tenants With Rights of Survivorship”, or where the parties are identified as “Husband and Wife”.
As long as both joint owners are alive, either has the full right to use all of the property. For example, on a joint bank account, one of the owners could draw out and spend all of the money in the account. Creditors of either can go after the joint property.
When one joint owner dies, the survivor automatically becomes the owner of the entire property. There is no probate required.
This can lead to problems if you have a Will that leaves your property to other children who are not on the joint accounts. Since your legal rights in joint property end at your death, there is nothing left to dispose of by Will. The child on the account becomes the sole owner, and has no legal duty to share with the other children, regardless of what your Will says.
If you are using joint accounts for convenience purposes, you might be better off with a Power of Attorney.
Stocks, bonds, real estate, cars, bank accounts, and almost anything else can be held as joint property.
A beneficiary designation is where you name someone who is to receive the property upon your death. This is different from a joint account because the beneficiary has no rights in the property until after you die. The most common example is a life insurance policy where you name the beneficiary. Other examples include IRA’s, pension plans, and many other insurance products.
You can also do this with bank or brokerage accounts by using something called a “Payable on Death” designation.
Like a Will, the beneficiary designation can be changed at any time before your death.
Like a joint account, property subject to a beneficiary designation does not pass according to the terms of your Will.