The Risks of Joint Tenancy

Posted on October 29th, 2007 in Estate Planning by wayne

Joint Tenancy with Rights of Survivorship, commonly call JTROS, is considered a “will substitute.” When you own property in JTROS, you own an undivided equal interest in the property with the other joint tenant(s). If an owner dies, the property passes to the surviving owner(s), without going through the deceased’s probate estate.

Many people use JTROS ownership to keep property out of the slow and often costly probate process. When a JTROS property owner dies, the remaining owner(s) has immediate access to the property and can use it or sell it at his/her discretion. The ability to avoid probate and to provide your surviving spouse with immediate access to the JTROS property makes this a very popular form of ownership between spouses.

Some of the risks associated with JTROS ownership are estate planning risks. Since the JTROS property passes outside of the deceased’s estate, it cannot be used to fund a “Bypass Trust” or any other type of estate planning device.   If the JTROS property is owned by a married couple, ½ of the value of the property is included in the deceased spouse’s estate.  If the other owner is not a spouse, the full value of the property is included in the deceased’s estate, unless the other owner(s) can prove that they contributed to the purchase of the property.

Other risks, associated with JTROS property, come from the fact that the owners have an “undivided equal interest” in the property. As described in detail in Financial Abundance Guide, this type of ownership can lead to unintended consequences. A lien can be placed on the property by one of the owners, without your knowledge. The property can also be sold and all of the funds taken by one of the JTROS owners, even your spouse. Finally, since JTROS property passes outside of probate, any disposition of the JTROS property that is included in your will is ignored.

Own property with your spouse in “tenancy by the entirety” instead of JTROS, If your state provides for this type of ownership. With “tenancy by the entirety,” you and your spouse must jointly consent before the property can be sold or gifted.

There are many situations where joint tenancy with rights of survivorship may be the best form of property ownership. However, it is important to understand the risks associated with using JTROS property ownership as a “cure all” for estate planning.

Estate Planning Using Roth IRAs

Posted on September 10th, 2007 in Estate Planning by wayne

Did you know that Roth IRAs are a great Estate Planning tool?

Most people know that contributions to a Roth IRA can grow tax free and provide tax-free withdrawals. This tax free growth can often provide better after-tax returns than a traditional IRA, depending upon your present tax bracket and what your tax bracket will be when you turn 70 ½.

You may not be aware of all of the following additional differences between a Roth IRA and a traditional IRA:

  1. If you file income taxes jointly and you and/or your spouse are covered by a company retirement plan, you and your spouse can each contribute $4,000 ($5,000 if you are over 50) to a Roth IRA, as long as your Adjusted Gross Income (AGI) is under $156,000 ($99,000 if you are single).
  2. As long as you have earned income and your AGI is under the maximum amounts allowed, you may contribute to a Roth IRA, regardless of how old you are.
  3. You are never required to take distributions from a Roth IRA.
  4. When you die, your Roth IRA beneficiary may roll over your Roth IRA into an inherited Roth IRA. The beneficiary will be required to take annual distributions based on their life expectancy, with the remaining assets growing tax free for as long as they live.
  5. In 2010, Adjusted Gross Income restrictions on converting IRAs to Roth IRAs are eliminated. While you pay taxes on the converted amounts, if you pass your Roth IRA assets to a younger heir, the total tax savings could very significant.

If you are in a position to pass some of your assets to your children or grandchildren, passing Roth IRA assets can provide many years of tax free income and growth to your beneficiary. Be sure to discuss this approach with your Estate Planning attorney.