How You Own Property Affects Estate Planning Part 1

This is the first part of a two part article discussing the effect of property ownership on estate planning.

How You Own Property Affects Estate Planning

How your property is titled will affect what happens to your property when you die. Therefore, it is very important to examine how property is owned. This is especially true if you are married and live in or have lived in a community property state. Four common forms of ownership that will be discussed in this article are the following: Property Owned in Trust, Property Owned in Individual Name, Co-Ownership of Property and Community Property.

Property Owned in Trust

As was discussed in a previous article, the use of a revocable trust has become a popular way to own property. With the help of a competent estate planner, an individual or couple can form a trust and then change ownership from their individual capacity to their capacity as trustee of their trust. Because the trust now owns the property, if something happens to the individual, the successor trustee named in the trust assumes ownership and manages or distributes the property as specified in the trust.

Property Owned in Individual Name

There are advantages and disadvantages of owning property in your individual name. One disadvantage of sole ownership is that if something happens to you, a probate proceeding will probably be necessary to clear title to the property. For example, real estate that you may want to pass to your wife or children must be transferred by a deed. If you are dead, you cannot sign a deed. If the deed is in just your name, it will be necessary to have a personal representative appointed by the court. After being appointed by the court, the personal representative will then have the authority to sign a deed conveying property to your beneficiaries.

The biggest advantage of sole ownership (or ownership in trust) is that you have control over your property. If property is owned with another individual, the other person can affect your ownership. If the other owner desires to sell the property, he or she can sale their interest. Additionally, the property can be subject to creditors of the other owners. This potential loss of control and potential creditors’ claims is a problem of co-ownership. For many older individuals, these concerns are a major reason why co-ownership with a child or children should be avoided. Many property owners have been surprised to learn that after placing their child’s name on their property the property they once owned outright is now subject to claims of their child’s creditors or child’s spouse in the event of a divorce. Co-ownership of property with non-spouses is almost never the best planning alternative.

Jeffery J. McKenna is a local attorney licensed in three states and serving clients in Utah, Nevada, and Arizona. He is a partner at the law firm of Barney, McKenna and Olmstead, with offices in St. George and Mesquite. He is a founding member of the Southern Utah Estate Planning Council. If you have questions or topics that you would like addressed in these Wednesday articles please email him at jmckenna@www.barney-mckenna.com or call 628-1711.