Kansas and Missouri Estate Planning

Why is "Joint Tenancy" Legal Dynamite?

Holding title to assets as joint tenants with rights of survivorship is not a panacea.

Do you have a business partner or a spouse?

Are you trying to determine the best way to divide asset ownership?

Are you considering holding the asset as joint tenants with rights of survivorship?

If so, each of you will own such property equally and the survivor will inherit when the other owner dies.

According to a recent Investopedia article titled “The Benefits And Pitfalls Of Joint Tenancy,” this strategy does have its advantages, but it also has some disadvantages.

What are they?

ADVANTAGES

Probate avoidance.

When you die, the probate court will review your will.

If the will is valid, the court will then instruct debts to be paid.

Any remaining amount is disbursed to beneficiaries per your wishes outlined in the will.

With no will, the court will divide your assets according to the laws of the state.

These proceedings can take anywhere from a few weeks to a few years.

With joint tenancy, the survivor will inherit without having the asset pass through any probate proceedings.

Equal Responsibility.

Two people are responsible for the asset.

Any liabilities or benefits are shared.

Continuity.

The asset will not be left in limbo after the death of one partner.

If the surviving spouse or owner has expenses or debts to be paid, he or she can use the funds immediately.

DISADVANTAGES

Deteriorating Relations.

Sharing control can be tricky and a risky business.

It means a consensus much be reached to do anything with the asset.

One party cannot act without the approval of the other.

This can create gridlock.

Frozen Bank Accounts.

The court is still allowed to freeze the account.

If the decedent was in heavy debt, the court may require liabilities to be paid from this account.

The court may also investigate whether the account received contributions from a single or individual party.

The money may not be accessed while the court determines what actions to take.

Partner Asset Control.

When the first spouse or partner dies, he or she has no control over what happens next.

The survivor can sell it or give it to someone else.

If this is a business relationship, you may effectively cut your own family out of receiving benefits from your business.

Are there other options besides joint tenancy?

Yes.

One alternative is tenancy in common.

What is this?

The asset is divided between the two parties.

One can take action with his or her portion without the approval of the other party.

The asset will not pass to the joint owner.

Instead, it will be passed to heirs through a will.

The surviving partner will be able to access or sell his or her half while the estate of the decedent is in probate.

If the disadvantages of joint tenancy seem to outweigh the benefits, you may want to consider tenancy in common.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Investopedia (March 20, 2018) “The Benefits And Pitfalls Of Joint Tenancy”

Should I Add My Son as a Joint Owner of My Home?

Joint titling may have negative unintended consequences.

You are thinking about what will happen to your things when you pass away.

Some things like life insurance policies are easy to transfer.

You simply need to select beneficiaries.

Other items are not as simple.

According to a recent nj.com article titled “The risks of changing your home's deed,” your home likely falls under this category.

A seemingly simple work around would be to add your adult child as a Joint Tenant with Rights of Survivorship.

What would this do?

It would allow your home to pass to your child after your death, while bypassing probate proceedings.

Sounds good.

Are there downsides?

Yes.

It can have negative tax consequences.

Only your half would be eligible for a step-up in basis for capital gains when you pass away.

 

Another potential problem is creditors.

Think divorces, lawsuits, and bankruptcies.

If your child has creditors, they could attach a lien to his or her half of the home.

Another issue could be the need to pay for long-term care.

Medicaid has a five-year lookback policy.

Transfers made within those five years could make you ineligible for Medicaid.

As you consider your options, work with an experienced estate planning attorney or elder law attorney to determine what actions would be best for you.

For example, both Kansas and Missouri law provide for the non-probate transfer of real estate without probate at death by way of a beneficiary deed.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: nj.com (January 29, 2018) “The risks of changing your home's deed”

How Do I Sell Jointly Owned Stock after the Death of My Spouse?

After your spouse dies, you become the sole owner of the stock.

If you are asking this question, you have lost someone you love.

I am sorry.

You want to sell stock you held jointly.

According to a recent Kiplinger article titled “Selling Jointly Owned Stock After the Death of a Spouse,” you should consider how the gains will be taxed.

Was your stock owned with your spouse as joint tenants with right of survivorship?

Congratulations.

The stock now belongs to you.

No probate is necessary.

How do you finalize this?

Call the brokerage firm.

The financial institution will instruct you regarding the documents you will need to provide.

Usually a death certificate is all that is needed to secure title in your name alone.

Because you own the stocks, you have the right to sell.

How will the taxes on be calculated when you sell?

This will depend largely on where you live.

In some states the capital gains will be calculated with half of the investment being stepped up.

What does this mean?

The gains or losses on the half belonging to your spouse will be based on the value at the time he or she died.

Your half will be calculated based on the value of the stock when it was purchased.

How does this work?

Here is an example.

You and your spouse purchased stock for $20,000.

The stock increased in value to $70,000 when your spouse passed.

The half belonging to your spouse is stepped up to the $35,000.

Your half still holds the original basis at $10,000.

You sell the stock for $80,000.

How will be taxed?

You will be taxed on the capital gains.

How is the capital gains calculated?

Subtract the basis for your half and the half belonging to your spouse from the amount you received for the stock.

In this example, this would be $80,000 minus $45,000.

The capital gains total?

$35,000.

You will be taxed on this amount.

What if you live in a "community property" state?

The calculation will be different.

The entire investment will be stepped up.

We will use the same numbers as the previous example.

The stock is worth $70,000 when your spouse died.

You again sold the stock for $80,000.

You will be taxed on the difference between these.

In this example, you would be taxed on $10,000.

How do you know the original value of the investment?

Ideally you would have kept records for the investment.

Do not have these?

Do not panic.

Ask your financial institution for assistance.

The good folks there should be able to help you get the appropriate information.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Kiplinger (April 7, 2017) “Selling Jointly Owned Stock After the Death of a Spouse”

Can I Share a House in Retirement to Cut Costs?

Having roommates can be great at any age.

Whether you have never been married, are divorced or have recently been widowed, sharing a house together can be a smart move.

The benefits?

You can live with your best friends.

You can share responsibilities.

You can spend less and get more for housing.

However, it is important to consider the legal implications of sharing ownership in real estate.

According to a recent NJ 101.5 article, titled “Buying a retirement home together,” you need to consider two primary issues: death and irreconcilable differences.

How do you prepare for these?

Carefully title your property.

Your options?

Joint Tenants with Rights of Survivorship (JTWROS)

With Joint Tenants with Rights of Survivorship, the property is owned equally and as a whole.

Can you transfer the property?

It depends.

For example, in Kansas and Missouri, if you want to "sever" the joint tenancy by transferring your undivided interest to your living trust, then you can without any prior approval of the co-owners.

What happens when you die?

When you die, your share will passed automatically to the other owners—no matter what your will says.

Tenants in Common (T-I-C)

With Tenants in Common (T-I-C) the property is retained independently in equal or unequal shares by the owners.

In short, each owner maintains complete control over his or her share.

Obviously, you can transfer your share at any time without the consent of the other owners.

How is the property transferred at death?

When you die, your share of the property will be transferred according to your will, making this basic element of estate planning necessary for both parties.

Because estate planning plays an important role in property ownership, you should work with an experienced estate planning attorney to ensure the titling of the property aligns with your estate planning goals.

You and your roommates should communicate about your respective desires when it comes to the ownership form and how each interest should pass at death.

With the planning complete, you can make memories with your roommates worry free. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: NJ 101.5 (August 2, 2016) “Buying a retirement home together”

How Do I Avoid "Titling" Mistakes in My Estate Planning?

Sad, but true.

Many estate planning feuds among surviving family members are avoidable.

Asset "titling" mistakes oftentimes put match to fuse to gunpowder.

Can you say BOOM!?

Here is a common scenario:

Widow and one of her adult children reside in the same town, or even in the same household. The other adult children live far, far away.

The local child may be very responsible, looking after mother's daily business.

This "business" may include taking mother shopping, shuttling her to and from doctors, picking up her prescription drugs, and making popcorn in the evening as they watch Kansas City Royals baseball.

Sooner or later, the local child may help mother with bill paying, income taxes and investing. At some point, mother will add the "name" of the local child to her checking, savings and investment accounts.

Perhaps even to her home.

Mother knows this local child will continue to manage her "paperwork," even if mother develops dementia like her own mother did, and someday local child will "inherit" and share everything equally with the non-local children.

Hmmm.

Let's unpack this now:

Question: Is the local child "named" on the account for "convenience" purposes or as a "joint tenant with rights of survivorship"?

Scenario #1: "Convenience."

If the local child is on mother's accounts as a "convenience," then she will have access to use the account only for mother's benefit.

Just like it sounds, the local child is only on the accounts solely for mother's convenience.

The laws of many states authorize such accounts. 

Problem: What if the local child is not responsible or has a change of heart and begins "dipping into the till"? The account could be drained before it is noticed. The local child may be personally penniless and, well, you get the point.

Not good.

Scenario #2: "Joint Tenant with Rights of Survivorship."

If the local child is on mother's accounts as a "joint owner," then the local child has received a "gift" of the accounts from mother and is just as much an owner as mother.

If the local child has a divorce, lawsuit or bankruptcy, then mother could lose it all while she is yet alive.

At mother's passing, the local child will own it all.

Yes, all.

Period.

If the local child does share with the far, far away siblings upon mother's death, then it may cost the local child "gift taxes" on the transfers.

But the local child does not need to share one wit ... and will not be inclined to share if the far, far away siblings get snarky about it.

What then?

In the famous words of estate litigation poet Warren Zevon ... send lawyers, guns and money!

A recent financialplanning.com article, titled “Titling Mistakes Can Disrupt Estate Plans,” considered these issues. 

The article tells the tale of a daughter who wanted her name "put on" all of her mother's accounts.

Give it a read, as the lessons to be learned are key to avoiding the avoidable.

Alternative solution?

Use a "general durable power of attorney" so the accounts can be managed for mother now and if she later becomes incapacitated.

Instead of adding one more more non-spouse as a "joint tenant with rights of survivorship," use pay-on-death (POD)/transfer-on-death designations to pass accounts without probate in equal shares to the local child and the far, far away siblings.

While you are at it, do not forget to ensure that beneficiary designations on life insurance, retirement funds and annuities are consistent with mother's inheritance distribution objectives, too.

Above all, work with an experienced estate planning attorney before adding a non-spouse to any account as a "convenience" or as a "joint owner".

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "estate planning Overland Park KS".

Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

There are two helpful resources just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com. 

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri..

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference: financialplanning.com (August 27, 2015) “Titling Mistakes Can Disrupt Estate Plans”

Rocks, Paper, Sissors ... Beneficiary Designations?

Estate planning is so much more than having a will prepared and executed. In fact, when the ink is dry on your will ... the process is just beginning.

Why?

Title and beneficiary designations are the 600 lbs. gorilla in the estate planning jungle.

Ignore that big fella to your peril.

This was the subject of a recent WMUR article, titled “Money Matters: The trump card of estate planning.”

While the article focuses on beneficiary designations, title arrangements are equally tricky and troublesome.

For example, say you are leaving the family farm to your son Bobby Jo under your will, but for some odd reason you added your daughter Kelly Sue as a Joint Tenant with Rights of Survivorship to the deed.

Perhaps you were acting on the "legal advice" of Fred who works up at the grain elevator?

Again.

At your death, Kelly Sue inherits the family farm.

Ouch.

The WMUR article recounts how a widow was shocked to learn that her husband's ex-wife inherited his life insurance proceeds, even though his will left everything to her.

It seems he never go around to changing his beneficiary designations after the divorce.  

With certain financial instruments the beneficiary designations ultimately control the asset disposition.

Period.

Here are some commonly-owned assets that transfer by beneficiary designation: 

• Individual and group life insurance
• Traditional and Roth IRA’s
• Qualified retirement plans, such as 401k’s
• ESOPs (Employee Stock Option Plans)
• Contractual rights under deferred compensation plans
• Employment contracts

Teaching point: Creating (or updating) your will or trust does not "automatically" change the disposition of assets that pass by beneficiary designation.

Now that you have eaten of this particular "tree of good and evil," contact your estate planning attorney for a fresh review of your beneficiary designations.

Note: This review should include ensuring that you have "contingent" beneficiaries designated in addition to the "primary" beneficiaries.

But, wait, there is more.

Request confirmation from the respective financial institutions that they have made the desired designations. Thereafter, you should securely retain the records related to your beneficiary designations with your estate planning legal documents.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website. 

Reference: WMUR (May 21, 2015) “Money Matters: The trump card of estate planning”

Joint Tenancy = Legal Dynamite

It has become fairly common for elderly parents to add their children as "joint tenants with rights of survivorship" on the family home. So, what is wrong with that?

First, the positive outcome intended: when children become co-owners of the home right now, then when the parents pass away the home passes by operation of law to the children without triggering probate. True, this may work just fine.

On the other hand, regard joint tenancy as "legal dynamite," particularly when all of the joint tenants are not married to one another.

as recently discussethe need for probate. While this often sounds like a good idea, consider the costs.

A recent TCPalm article, titled “Understanding the Pitfalls of Joint Tenancy,” points out the biggest potential problems.

When your children are co-owners of your home or other property, they have the same rights in the property as you. Your child could block a sale of the house. If your child is a co-owner of your bank account, he or she could withdraw money from the account. All of it. You might think your child is in a good financial position now, but what if that changes? Your property could become subject to your child's creditors, to include a future former in-law. Additionally, there might be gift tax consequences to the joint tenancy.

Do not misunderstand, joint tenancy is not improper in all circumstances. However, depending on your objectives, you really should consider other options.

For example, you can use trusts as a way to avoid probate or even pay on death options for financial accounts. When it comes to your home, Kansas and Missouri non-probate transfer laws provide for a "beneficiary deed" to effect the transfer ... but only postmortem. Alternatively, consider creating a last will that provides for "independent" administration to streamline the probate process itself.

In the end, be sure to consult an experienced estate planning attorney regarding which options are the best for you before you consider making your children joint tenants.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference:TCPalm (July 2, 2014) “Understanding the Pitfalls of Joint Tenancy”