Dangerous Ways of Avoiding Probate
Many Coloradans are convinced that probate is something to be avoided. I do not agree that probate is always, or even usually, bad. I believe that trusts are used too often and unnecessarily complicate many estates. Here are some common ways to avoid probate which do not include a trust:
* Put property in joint tenancy with right of survivorship, or name someone to be joint signer on a bank account. Joint tenancy means at death the surviving owner/tenant automatically inherits everything left of the property. Many married couples own their homes as joint tenants. There are reasons not to create a joint tenancy. Giving someone a joint ownership interest in property opens the property for the joint tenant’s creditors. Once created, a joint tenancy cannot be undone without the permission of both living joint tenants. Creating a joint bank account allows the other person to take money from the account whenever and in whatever amount the person wishes.
* Create a beneficiary deed. Title to an interest in real property may be transferred on the death of the owner by
recording, prior to the owner’s death, a beneficiary deed designating a beneficiary for the property. The transfer is effective only on the death of the owner, and the owner can revoke
or cancel a beneficiary deed by recording a proper revocation prior to his or her death.
The default form of joint ownership in real estate is tenancy in common. Unless a deed to property contains specific language creating a joint tenancy with right of survivorship, the ownership is by tenancy in common. It is almost always unwise to give property to others as tenants in common, simply to avoid probate. The co-owner may sell or gift that owner’s interest to outsiders. Tenants in common who cannot agree on how to sell or manage the property have to go to court to settle their differences. Sometimes the only way to resolve their differences is to force a sale of the property and split the proceeds. Here is an example from one of our cases. Father gives his home in equal shares to his two sons. One son lives in the home with Father. Immediately upon Father’s death, the brother not in the home asks the other to pay rent. In response, the brother in the home demands repayment by the other for maintenance chores over the years. The non-resident brother then threatens to go to court and get an order to sell the home, where the other has lived for years. A last will and probate could have avoided all that.
* POD (payable on death) accounts. Such an account is treated like a normal bank account during the lifetime of
the account owner. On the account owner’s death, any funds
in the account will be automatically distributed to recipients, or beneficiaries, designated by the account owner. The beneficiaries have no control over the account during the owner’s
lifetime.