For many people, a home is the largest single asset he or she will ever own. Beyond a primary residence, real estate can represent a significant portion of an individual’s wealth in the form of investment properties.
Unfortunately, the probate system generally creates the most complications for real estate than any other form of property.
Despite how uncomplicated the estate is otherwise, or even if the estate consists solely of real estate, the presence of any real estate in a decedent’s belongings can create headaches for all involved.
Why is this?
The main reason is that many county recorders will not recognize a Probate Registrar’s determination of heirs, which essentially means that a county recording office may not recognize the title as being transferred from the deceased to his or her heirs. This can create significant problems for these heirs should they ever try to sell the property since they would not be recognized as holding a marketable title to the property. Thus, to avoid this, the estate must go through formal probate administration.
The only real exceptions to this are where the will specifically identifies the real estate and specifically identifies by name who is to receive the real estate or where the will leaves the entire estate or residue to specifically-named individuals (there are lesser exceptions, but would still require some higher level of court intervention).
As anyone who has ever had to experience a formal probate administration would tell you, it is not a brief, cheap, or by and large enjoyable experience.
Moreover, if real estate located in another state is part of the estate, a separate probate proceeding must be commenced therein, consuming even more time and resources.
There are several solutions to this problem, however.
The first option is joint tenancy, more specifically “joint tenancy with right of survivorship,” which means that the real estate is held jointly between two individuals, and when one passes away, the other or others automatically gain the decedent’s share.
This is a device employed by the majority of married couples already, but it could also conceivably be used to pass property on to other heirs such as children. If an heir or heirs were added as joint tenants in the title of another’s real estate, at the time of that original owner’s death, the property would pass instantly to the heir or heirs.
The problem with this approach is that the heirs would become part owners of the property during the original owners’ lifetimes, and any decisions regarding the property (i.e. selling, mortgaging, etc) would be subject to the heirs’ approval first.
The second option is the creation of living trust (also sometimes called an “inter vivos trust”). A trust operates by transferring property from one person (the “settlor”) to another (the “trustee”) who then holds and/or uses legal title to it for the benefit of a third person (the “beneficiary”). Strangely enough, all three of these roles can be filled by the same person (at least in Minnesota).
The advantage comes in that trusts allow trust assets to be used for specific purposes, and allow for successor trustees and beneficiaries to be named. Also, trusts allow for specific instructions on handling and disposition of trust assets should the trustee or beneficiary become incapacitated or die.
A very common scenario involving trusts with real estate is an individual or joint owners of real estate placing their home into a trust, naming themselves as joint trustees and joint beneficiaries. A successor trustee and successor beneficiary can be named, and instructions can be given on what the trustee is to do with the trust property (the real estate) should the original owners (now the trustees and beneficiaries) become incapacitated or die. Thus, an owner can continue enjoying her home throughout the rest of her life, and then have it pass to whomever she wishes when she passes away.
The only real disadvantage is that the property owner must abide by the terms of the trust, which, if well-drafted, should not pose any significant limitation on the use of the property.
If you have any questions about planning your estate, contact Byellin Law for a free consultation.