As we counsel estate planning clients, we often encounter situations where clients have followed well-intentioned advice from a broker or friend and taken title to property as joint tenants with right of survivorship (“JTWROS” ). At first blush this may seem a simple way to provide for title to be transferred to someone (the other joint tenant or tenants) on the death of the first joint tenant to die.

A bit too simple, in fact. And a bad idea for spouses or domestic partners. It is even worse if any of the other joint tenants are not spouses or domestic partners.

The hazards and pitfalls of JTWROS title holding are too numerous to list in this limited space. Suffice it to say it is a really bad idea.

Call us If you’d like to know more about the problems and pitfalls of holding title in JTWROS form.

Of interest:

* Joint Tenancies:  “DIY” Estate Planning Creates Problems

* Pitfalls in Tax Planning for Married Couples

 

Tax Planning Not Simple for Couples

Joint Tenancy Trap—DIY Disaster

taxed in either spouse’s estate. The 2001 Tax Act (EGTRRA) undermined this strategy.

Bypass trust drawbacks

There are two reasons a fully funded bypass trust now may not be advantageous. First, by following a strict formula used in the traditional estate plan, too much money may be allocated to the bypass trust. The surviving spouse does not have free access to these assets. The current $2 million exemption (increasing to $3 million in 2009) may divert too much from the surviving spouse.

Second, a fully funded bypass trust may trigger state estate or inheritance taxes if the married couple resides in a state that decoupled from the federal estate tax system. Many states (including California) received a share of the federal estate tax by collecting from the decedent’s estate the credit for state death taxes allowed against the federal estate tax under federal law. The federal state death tax credit was replaced with a deduction for the amount of state death tax actually paid.

California abandoned its inheritance tax but collected the so-called “pick up tax” based on the federal estate tax credit for state death taxes. California now has no state estate tax. So long as this is the case, California residents with assets located only in California, need not struggle to find the optimum funding level for a bypass trust, unlike those residing in states with their own death tax schemes.

By itself, overfunding is grounds for seeking alternatives to the traditional bypass trust strategy.  There are at least five alternatives for married couples, which can provide flexibility to determine the appropriate funding for a bypass trust at the death of the first spouse. Some are appropriate for California spouses, others not:  [See Pg 2]

 

Traditional estate plans for married couples set up a bypass or family trust on the death of the first spouse . Commonly, that trust is funded with the maximum amount that  may pass free of estate tax (now $2 million, $3 million in 2009).

The deceased spouse’s remaining assets pass to the surviving spouse outright or in trust, tax free as a result of the unlimited marital deduction.

This technique minimized estate taxes because assets allocated to the bypass trust are not

Herlihy & Herlihy/Attorneys

Briefly Speaking

Excerpts from Summer 2008

Newsletter 

“The hazards and pitfalls of JTWROS title holding . . . make this a really bad idea.”