Estate Planning with Ease

5 things to know about Joint Tenancies

Putting assets in joint tenancy is an easy way to arrange for assets to pass to people you choose upon your death without having a will. It may work too, but be aware of some facts about joint tenancy.

1. Joint tenancies may not avoid probate—it may just postpone it. In a worst-case scenario, if your assets are held in joint tenancy with your spouse and neither you nor your spouse has a will, the assets will be subject to probate.

2. If you pass away first, you will never know what ultimately happens to the asset. Because the joint owner becomes the sole owner of those assets upon your death, he or she can choose who inherits, regardless of your wishes. You could unintentionally cause the problems that you were trying to avoid in the first place.

3. If your co-owner becomes incapacitated, the court could end up being your new co-owner. This means you could end up having to ask the court for permission to use your own money! When a person becomes incapacitated, often a guardian of the estate is appointed to manage that person’s assets—including those held in joint tenancy. 

4. Removing a co-owner from the title of an account is not as easy as adding one. If your co-owner doesn't agree with being removed, you could end up in court. In some instances, the co-owner must also agree before you can withdraw funds from the account or even change the address.

5. If your joint owner is sued over an accident, the jointly owned asset could end up as part of the lawsuit. Likewise, if your co-owner has debts, your joint asset could be seized as settlement. 

You may also think that if you name beneficiaries on accounts, you have a solid estate plan. That may not be true. If your named beneficiaries are your minor children, a guardian of that minor child’s estate is appointed by the court to manage that child’s assets until he or she reaches legal age. Further, your beneficiaries are only entitled to the assets when you die. Thus, if you become incapacitated, your beneficiaries will not have access to those accounts. Unless there is also a joint tenant, your beneficiaries may find themselves in court asking for permission to access money to pay your bills.

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Choosing your executor

Before you begin working with an attorney to write your Last Will and Testament, think about who you want to be your Executor. The person you choose will be responsible for carrying out your instructions and managing your financial and legal affairs after your death.

When choosing your Executor, make sure that person can handle this important responsibility. If you’re considering a family member, you may want to choose someone who has a legal or financial background, who will be comfortable making financial decisions involving your assets. He or she may be responsible for overseeing your investments, business interests and personal effects and household items. Since settling an estate can easily take months and sometimes years, make sure the person you choose not only has the time to devote to this but is also willing. If your estate is large or especially complicated, you may even want to name a professional.

If you do not name an executor, the probate court will appoint a personal representative who might not be who you would have chosen. For this reason, you should also consider naming an alternate executor in case your first choice is unavailable.

Some of the duties your executor will be responsible for may include: collecting, safekeeping and managing your assets, settling any outstanding debts, filing claims for insurance or retirement benefits, completing final income taxes and distributing the assets of your estate. It’s a lot of work so talk to this person before naming him or her as your executor to be sure you’re making the right choice.

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Documents to include in your estate plan

Having a will can give you the peace of mind knowing that your family will be taken care of according to your wishes when you die. But what if you get sick and can’t manage your finances or make decisions? You should include other documents in your estate plan to help your loved ones make the right decisions for you. Here’s what to consider:

A durable power of attorney allows you to give someone you trust the legal right to pay your bills or manage your finances while you’re unable. It “kicks in” when your doctor says you can’t make decisions any longer and lasts for as long as you’re sick.

A living will lets you specify whether you want your life prolonged by artificial means if there is no reasonable hope of recovery. This is also called a Declaration of a Desire for a Natural Death. Having a living will helps your loved ones deal with this difficult decision. 

With a healthcare power of attorney, you name someone to make medical decisions for you if you are unable to speak for yourself. While the living will is limited to the withdrawal or withholding of life-support treatments, the healthcare power of attorney covers nearly all other health decisions. The person you name, called the “attorney-in-fact,” will work with your doctors and healthcare providers to manage your care and carry out your wishes regarding medical treatment and procedures. It eases the burden of your loved ones having to make these decisions.

It’s also a good idea to write a letter of last instruction. This is a great way to tell your loved ones where you keep important documents and to provide burial instructions.

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Does your will need an update?

Every time you turn around, life changes.  The will you created 10 years ago may not work today. It’s a good idea to review your estate plan every two years or whenever you have a major life event. Not doing so could mean that your estate passes to people you would no longer choose to leave your assets to. Some examples of these significant events include:

Births. A new child or grandchild may trigger a need to update your will if you want to be sure that the new addition to the family receives assets upon your death.

Death. The death of a spouse or named beneficiary may change the way you want some of your assets distributed. It can also mean that you need to name a new guardian for minor or disabled adult children.

Marriage. This is a good time to review your entire estate plan. You may need to add or change joint tenancies on accounts or change beneficiary designations on insurance or retirement benefits. It may also be a time to consider changing who is designated to make medical decisions for you if you can’t. If your child is marrying, you may choose to revise how that child receives assets in your estate plan.

Divorce. If you don’t want an ex-spouse to inherit your assets or make medical decisions on your behalf, you are required to change joint tenancies or beneficiary designations, in addition to your Living Will and Healthcare Power of Attorney. You may also want to amend your will to prevent the former spouse from inheriting. If you have minor children, you may consider creating a trust or making other provisions to ensure that funds are available for the children’s care.

Disposal or acquisition of assets. If your will bequests specific property to loved ones, and these are assets that you no longer own, you should update your will accordingly. Or, maybe you’ve acquired additional assets that you want to designate to loved ones.

Changes in the tax law. Recent inheritance tax law changes may call for a review of your will to make sure that it meets your needs, while taking full advantage of the tax law’s benefits and avoiding any penalties that may now be in effect.

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Where there's a will

Regardless of how much property you own, a will is an important part of your financial future – especially if you have children or dependents.

A will lets you to specify how you want your property to be distributed upon your death. You should name someone you trust to act as your executor. Your executor’s job is to manage your assets, pay your final bills and distribute your assets. A will also lets you name a guardian to take care of your minor or disabled adult children and a custodian for their property. You can have peace of mind knowing that your loved ones and assets will be handled the way you want when you are gone.

Having a will may not avoid probate, but it can make the process easier by giving the court your directions on how you want your assets distributed once your final debts and expenses are paid.  Your will only controls the assets held solely in your name. It does not control assets that are held jointly. Those will go to your spouse or other joint owner. It also doesn't control assets with beneficiaries like your IRA, retirement benefits or life insurance policies so it’s important to make sure that you coordinate the information so you don’t unintentionally disinherit a loved one! Naming only one of your children as a joint owner on your accounts to make it easier for you may also mean that upon your death your other children won’t get any of those funds—even if your will states that everyone should get an equal share.

If you die without a will, the state will decide how your estate is settled. This means that your assets may not end up where you’d want them to go. While the state might assume you’d want your assets to be shared between your spouse and children, this may not be the case. Also, the court will name someone (who may not be the person you want or trust) to serve as the administrator of your estate. The administrator appointed by the court has the same authority and duties as the executor.     

It is important to review your will every two years or anytime a significant event occurs in your life like marriage, divorce, a new baby or if you move out of state to ensure that it still says what you want it to say. 

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Hi! I'm Financial Advisor Jeff Dortch. Visit Financial Planning or give us a call at 877.367.5428. Our team is here to help.