I frequently get questions from my clients about how to avoid probate by retitling property. If your desire is to avoid probate, a properly funded revocable trust can do that. However, certain types of property ownership can also avoid probate. There are three categories of property ownership – property titled in your name, in joint names with others, or by contract. Below is a summary of each type of property ownership and whether or not you can use it to avoid probate.
1. Individual Ownership
Individual ownership refers to property that is titled in your name only (i.e., owned by you). When you pass away, property owned in your name will usually have to go through probate to change the ownership from your name to the name(s) of your beneficiaries.
2. Joint Ownership
Joint ownership has several different forms:
Joint tenancy with right of survivorship (JTWROS) – With JTWROS, all of the owners hold an equal right to the property. Any owner can withdraw funds from an account without the knowledge or permission of the other owners. When one joint owner dies, ownership of the property automatically transfers to the surviving joint tenants without going through probate.
Tenancy by the entirety (TBE) – TBE is a type of joint ownership with rights of survivorship and can only exist between a husband and wife. Either spouse can withdraw funds from an account without the knowledge or permission of the other spouse. When one spouse passes away, ownership of the property automatically transfers to the surviving spouse without going through probate.
Community property –This is a type of joint ownership also can only exist between a husband and wife. Each spouse’s ownership rights in community property are set by your state laws.
Tenancy in common (TIC) – With TIC, each owner (tenant in common) owns a specific percentage or piece of the property and can withdraw or sell his/her piece of the property. When a tenant in common passes away, his or her share of the property passes to his or her beneficiaries. Depending on the estate plan of the owner who passed away, TIC may or may not avoid probate.
3. Title by Contract
Title by contract covers payable on death (POD) and transfer on death (TOD) accounts as well as life insurance, retirement accounts, 401(k)s, annuities, and Revocable Living Trusts, which all name specific beneficiaries. When the owner of the property passes away, the property passes to the designated beneficiaries without going through probate.