When it comes to estate planning, there are many things to think about. One of the most important decisions you’ll make is how to pass your assets on. With jointly-owned assets, choosing right of survivorship vs writing a will can be confusing. In this blog, we will look at the best strategies to pass your assets on. We’ll also discuss whether right of survivorship vs will can help you make the best decisions for your family’s future.
Why Write a Will?
A large part of estate planning is preparing for your assets to pass on in the way you wish. While it seems like writing a will might be all you need, the truth is that a will does not leave property to your heirs. It sends them to probate court, where a judge determines if your will is valid and then appoints a personal representative to oversee the distribution of your assets.
However, your heirs do not inherit until the court is satisfied that the representative has paid all your estate debts, creditors, and taxes.
Regardless, writing your will is a crucial part of any estate plan. Without a will, your estate is subject to intestacy laws that determine who will inherit based on odd North Carolina laws.
These strange NC statutes often end up giving a living spouse only a percentage of your assets while the rest goes to your parents or children!
While a will cannot avoid probate on its own, it is a crucial part of an overall estate planning strategy.
Talk with your estate planning attorney about how a particular type of will, called a pour-over will, along with a living trust, can avoid the courtroom scene entirely for your loved ones!
Can a Right of Survivorship Disinherit Heirs in Your Will?
Does a right of survivorship work to override the wishes of a last will and testament? In short, yes. The right of survivorship bypasses probate and immediately bestows ownership rights.
With real estate and certain other assets in North Carolina, a right of survivorship works by entitling the other owner to the assets (whether the will agrees or not!)
That’s why it’s crucial to know whether you own real property with a “survivorship deed.” If your will says differently than your deed, the joint owner will inherit while the heir in the will gets left out in the cold.
An individual who inherits through a deed’s right of survivorship may or may not choose to share with someone named in a will. So, unless you want to start a family feud, your will must agree with your ownership deeds.
In North Carolina, there are four basic types of real estate ownership:
Sole Ownership
When a real estate property belongs to only one owner, they have sole ownership.
In North Carolina, as a sole owner of property in your name alone, you may think you can do what you wish with your property. However, even if your spouse does not share joint ownership, you do not hold all the rights to your property if you’re married. Your spouse has ownership rights.
If you own property in your own name, you can’t sell it, convey it, or encumber it without getting signatures from your spouse too. (1)
Tenants by the Entirety
Tenants by the Entirety is the ownership status of any married couple who purchases a home together. The property will be jointly and entirely owned by the couple, with one unified interest belonging to both parties combined.
Upon the death of one partner, the remaining owner surviving spouse will automatically receive ownership due to the right of survivorship.
This ownership arrangement blocks judgment creditors from attaching liens to real property unless the lien is against both spouses. However, the IRS may place a lien anyway.
Joint Tenancy with Right of Survivorship
With jointly owned property deeded as a joint tenancy with the right of survivorship, when one owner dies, their interest in the property passes to the other owner(s). Often, unmarried couples choose to title their property as joint tenancy agreements. However, anyone can own property together as a joint tenancy with the right of survivorship.
It’s crucial to know that real property titled with the right of survivorship does not pass to your heirs. Instead, these jointly held properties with the right of survivorship automatically pass the property deed to the other co-owner(s).
Even if you write a will giving your share of the property to your grown child, a joint tenancy agreement will pass your interest to the other owners, not the individual named in your will.
Two or more owners can jointly own a property equally with a joint tenancy arrangement. Joint owners in the arrangement own an equal share in the property interest while living.
When one owner dies, the surviving owners inherit equal shares of the property title to the real estate. The remaining owners inherit despite a will that may declare another heir.
Joint Tenants or Tenancy in Common
Anyone can buy property together and own a fraction of the property interest. For example, one person can own 25% while the other owns 75%. Or you can own equal interest in the property. However, as tenants in common, you have full rights to the entire property.
No survivorship rights exist for the tenancy in common. Co-owners own their share, but when a tenant dies, surviving tenants do not automatically inherit the property owned by the decedent.
When one owner dies, their interest passes through the legal process of probate to their heirs (unless their estate avoids probate – more on that next!)
You can avoid probate and other significant estate problems by passing property on through a Transfer on Death Deed (TOD)
Real Estate Joint Property Ownership Issues for Surviving Owner
Owning property together makes sense if you’re happy to pass the property on to a spouse, partner, or co-owner who lives with you as a surviving tenant. Your surviving joint tenant probably bought and owned the property with you.
However, co-ownership does not make sense if you’re considering deeding your property jointly as an inheritance to an heir. Financially, you can bring painful problems to your heirs by deeding property jointly with them!
First off, heirs who inherit a deed before your death do not get a “step up” in basis. Let’s say that your property was worth $100,000 in 1985 when you bought it. Now, it is worth $475,000. In many areas of North Carolina, this is a likely scenario!
The problem comes when you pass away. At that point, your surviving heir inherits your property. All seems well and fine, right? NO.
If your heir(s) decide to sell your property at some point, they will owe capital gains taxes on the equity your home earned over the years. Your family members who inherit can end up owing taxes to the federal government on the $375,000!! This is not a scenario you want for your loved ones.
It’s unlikely that you need to worry about federal estate taxes unless you own more than $12.92 million ($25.84 million per married couple) in assets in 2023. And North Carolina does not charge an estate or “death” tax like other states.
Why a Transfer on Death Deed (TOD) Makes Sense
A TOD is a better way to pass property to your loved ones. With a TOD, your property automatically passes to your loved ones upon your death without going through probate.
With a TOD, your heirs have complete ownership immediately upon your passing, and there is a “step up” in basis – meaning there are no capital gains taxes to pay!!
While passing personal property through a will is crucial for passing on assets, it makes sense to consider the TOD when it comes to real estate.
Other Assets You Can Pass On Without Probate Court
The probate process determines who gets what, but probate has no control over some assets!
Naming beneficiaries is crucial for letting certain assets immediately pass to your desired heir(s). Naming a beneficiary is the easiest way to avoid probate for the following assets.
Common beneficiary designation assets include:
- Life insurance
- Annuities
- Retirement plans such as 401K
- Pensions
- Roth IRAs
- Jointly owned bank accounts with the right of survivorship
Avoiding Probate Court for Your Loved Ones
Probated estates are subject to various costs from attorneys, executors, appraisers, accountants, courts, and state law! These court processes can also last for years, especially if a family member contests your will or a creditor makes a false claim!
Depending on your estate’s probate complexity, fees can run into tens of thousands of dollars! These fees eat into the estate you hope to pass on! However, you can reduce your estate’s costs by avoiding probate. It’s really that simple.
Other than passing property through a transfer on death deed and naming beneficiaries, another strategy tops them all. It’s called the Living Trust
To entirely avoid probate and ensure your heirs receive their inheritance immediately, create and fund a revocable living trust. Let’s look at this gold standard estate planning strategy next.
Pass On Your Estate Efficiently With Less Cost
A revocable living trust owns your property, yet you remain in charge of all legal decisions until your death.
After your death, your named trustee manages your assets – according to your wishes. The trustee manages the payment of your actual creditors, pays any taxes, and then dispurses assets to your heirs.
A trust works well to avoid probate and expedite the passing of assets to heirs. When properly created and funded by an experienced estate planning attorney, you can count on your estate plan smoothly enacting your last wishes.
Our Experienced Estate Planning Attorneys Can Help
At the Law Office of Hopler, Wilms, and Hanna, our estate planning attorneys understand your unique needs and are ready to help you put together an efficient estate plan with as little cost as possible. We help you see whether it makes sense to avoid probate in your particular case and, if so, the best way to do so.
We look at the available estate planning tools in North Carolina and help you decide which will work best for your unique situation. Whether TODs, beneficiary designations, or a trust, we help you plan to pass on your estate to honor your wishes and desires.
Contact our office today to start planning for your loved ones’ future!