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Money June 2013

Legal Ease

Trust the Trust, Not Joint Titling

By Jonathan J. David

A husband and wife who retain assets in joint names do run the risk of dying in a common accident, and in that event, those assets would have to be probated, which could have been avoided if the trust owned the assets from the outset.

Dear Jonathan: Several years ago my husband and I created a trust for probate avoidance purposes. At that time, each of us transferred certain investment accounts that were titled in our individual names to the trust, but we retained everything else that we owned jointly and did not put those assets in the trust. We were told at the time that any jointly titled assets we owned when one of us died would avoid probate because the survivor would automatically own those assets. Consequently, we kept many of our assets in our joint names.

My husband passed away a few months ago, and I am trying to decide whether I need to now transfer those assets that were jointly titled to the trust so that they too can avoid probate when I pass away, or whether I can simply add my daughter’s name as a joint owner of those assets. Does it matter? What do you recommend?

Jonathan says: First of all, you are correct in that jointly titled property between a husband and wife avoids probate upon the first spouse’s death. At that time, the surviving spouse automatically becomes the sole owner of those assets without the need of probate. So there was no need from a probate avoidance perspective to transfer those assets to your trust at that time. I would like to point out, however, that even though this did not end up being a problem for you, a husband and wife who retain assets in joint names do run the risk of dying in a common accident, and in that event, those assets would have to be probated, which could have been avoided if the trust owned the assets from the outset.

Without having any specific information regarding the nature of your assets, my general recommendation is to transfer those assets that were jointly owned by you and your husband to your trust so that those assets avoid probate upon your death. Before doing so, however, I recommend that you meet with an estate planning attorney and have him or her complete a thorough review of all of your assets to determine what they are and how they are titled, as well as whether any asset permits you to name a beneficiary to receive that asset upon your death.

For instance, some investment accounts will allow you to name a beneficiary, in which case, you would then have the choice of actually re-titling that investment account to your trust or leaving that account in your name, but naming the trust as the beneficiary of that account upon your death. Also, there are certain assets, such as life insurance policies and IRAs, which you would not transfer to your trust; instead, you would name beneficiaries to receive the proceeds from those investments upon your death. Further, if you have a life insurance policy or an IRA which currently names your husband as the beneficiary, since he is now deceased, you will want to make sure that you name someone else as the beneficiary of those investments.

You also asked about the possibility of naming your daughter as a joint owner of your assets instead of actually transferring the assets to your trust. I generally recommend against this because it needlessly complicates matters. Even though you could accomplish probate avoidance by placing your daughter’s name on the title to your assets, the act of adding her name to the titles of your assets would be treated as you having made a gift to her, and depending upon the value of those assets, it could be treated as a taxable gift, which would require the filing of a gift tax return. Also, by naming your daughter to the title of your various assets, you would in effect be disinheriting any other children you have. This is because your daughter would automatically own those assets outright upon your death, and she would not be legally required to share those assets with anyone.

Even if her intent now is to share those assets with her siblings, there is no guarantee that she actually will, or she could die before she gets the chance, and, in that case, those assets would now become part of her estate. Further, even if she keeps her word and shares those assets with your other children, upon doing so, she will be deemed to have made gifts to those children and if the amount of each gift is over the annual gift tax exclusion at that time, that excess would be deemed to be a taxable gift to each child for which a gift tax return would need to be filed. So you can see, there are many potential complications involved when you name a child as a joint owner of an asset for the purpose of avoiding probate. The easier and safer course is to transfer the asset to the trust.

Good luck.


Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, PC , 1700 East Beltline, N.E., Grand Rapids, Michigan 49525.

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