Alternatives to JTWROS
Although many people plan their estates by design or default using joint tenancy with rights of survivorship (JTWROS), just as many look for ways to avoid probate without the drawbacks of JTWROS. Here is a quick review of several commonly used alternatives to JTWROS.
Pay on Death, Transfer on Death, Beneficiary Deeds
Many states have non-probate transfer statutes that provide for the disposition of many types of assets at death, without requiring potentially time-consuming and expensive probate proceedings. These laws have also eliminated some of the disadvantages of joint tenancies.
It is recommended that you determine whether a simple pay-on-death (POD) designation is available under your state laws for your savings and checking accounts, as well as on certificates of deposit. Unlike JTWROS, you remain in control of the money in the account (to spend as you wish) and the POD beneficiary has no rights to the money. However, upon your death, the beneficiary can claim the money directly from the bank without waiting for it to pass though probate.
If your state law permits, other assets can pass in the same manner as POD. For example, you may be able to arrange for titled assets such as securities and even your motor vehicles to transfer-on-death (TOD) to your chosen beneficiary. Without subjecting these assets to the risks of JTWROS during your lifetime and probate at your death, TOD arrangements are a popular option. The beneficiary works directly with the brokerage or DMV to transfer the account or motor vehicle upon presentation of your death certificate.
What about real estate? More than half of all states have laws authorizing beneficiary deeds to transfer real estate. It is similar to a POD or TOD, except it is for real estate. You only need to sign and record the beneficiary deed (while you are alive) for the transfer to be effective upon your death. The beneficiary deed is revocable and the property may be sold at any time. A different beneficiary may be designated and that beneficiary has no rights until your death.
Another benefit of POD, TOD and beneficiary deed arrangements is that no present interest is transferred, so no potential gift tax liability is triggered.
Although these alternatives may be preferable to JTWROS, they are still not fool-proof substitutes for a will. What happens if your beneficiaries die before you can revise your non-probate transfer arrangements?
Revocable Living Trusts
Another popular alternative to joint tenancy is to create a revocable living trust to hold title to your assets during your lifetime and then distribute them according to your instructions at your death, without probate.
The key to any successful revocable living trust is to properly “fund” it. Similar to a fine automobile without fuel in the tank, a revocable living trust is not going anywhere if it does not directly hold title to your assets now or by beneficiary designation later. However, great care must be taken when planning beneficiary designations, especially when it comes to distributions from retirement plans.
As with the other alternatives, a will should always be created as part of revocable living trust planning, in case any assets are unintentionally left out of the trust.
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