Most people want to avoid probate—the court process which divides your estate based on your will or State law. Some people title their assets in joint tenancy as joint tenancy avoids probate. But this can create problems.
Joint tenancy can create a gift which needs to be reported on a gift tax return. More importantly, you expose the asset to the legal liabilities of the other party. Say your son, a general contractor, is involved with a building and someone gets hurt. They sue him and attach his assets. The asset you own in joint tenancy with your son is placed at risk.
The solution is a living trust which avoids probate and will not expose your assets to any other’s liability.
But the simplest way for simple estates may be the Pay On Death (POD) and Transfer on Death (TOD) provisions available in many states. These provisions allow you to name a beneficiary on bank accounts, securities and real estate in some states. That way, the asset passes directly to the named beneficiary. Be careful however.
If your will says that your house is to be divided among your three children, but the TOD provisions in your deed says that only one child is named as beneficiary, your will has no effect and the named beneficiary gets the house. Additionally, you need to watch out for how your will deals with estate taxes. If the taxes are to be divided equally among the heirs, the 3 children will share the tax on the house that only one child inherited.
The TOD and POD provisions can make avoiding probate simpler, but before you act, check off on the attached coupon for greater details.