One of the most common issues we find during estate planning is improperly titled real property. Your land, houses, buildings, fences, or trees—anything permanently attached to the land—are all considered real property. The title(s), which refers to the name(s) on the account or deed for these assets, will determine how the assets will pass at death.
It is estimated that more than half of assets in the U.S. do not pass according to a will, but rather by joint titling, beneficiary designations, and trusts. Because titling and beneficiary designations take precedence over the will, improper titling could result in unintended consequences. Below are the top three mistakes that our attorneys encounter.
Adding your child’s name to the deed. Many people attempt to avoid probate by making their child a co-owner of real property. Doing so has two significant drawbacks. First, because the child is now a co-owner, the property is potentially subject to the claims of that child’s creditors, including his or her spouse in the event of a divorce. Second, the child loses the opportunity to take the full “step-up” in cost basis upon the death of the parent(s). The “step-up” in basis eliminates a child’s capital gains tax liability on appreciation in value that occurred during the lifetime of the parent(s). With the proper legal advice, you can sidestep these two issues and still manage to avoid probate.
Transferring property purchased prior to 2006 to a revocable trust. If you purchased homeowner’s title insurance on real property acquired prior to 2006, then a subsequent transfer to your revocable trust may cause a lapse in your insurance coverage. This is a common mistake that many homeowners make, especially as the use of revocable trusts has become more prevalent. Fortunately, with the proper legal advice, the issue can be avoided at little cost to the homeowner.
Purchasing property in the name of your revocable trust. When a married couple owns real property, the preferred form of co-tenancy is often a tenancy by the entireties, which offers protection from the claims of many types of creditors. Maryland law now extends this creditor protection to revocable trusts established by a married couple, but only if the property was owned by the couple as tenants by the entireties prior to the transfer into the trusts. Therefore, if you and your spouse have existing revocable trust agreements, purchasing property directly in the name of your trusts can be a major mistake.
About Liff, Walsh & Simmons
Estate Planning is the process of planning for incapacity and death. One of the most common goals of estate planning is to eliminate uncertainties over the administration of an individual’s assets and to reduce taxes and administrative expenses. My colleagues at Liff, Walsh and Simmons and I have helped many individuals, families, and business owners determine their best course of action regarding estate planning, administration and succession plans. If you have questions, or would like more information, email me at GFerra@liffwalsh.com or call me direct at (443) 569-7425.
In addition to estate planning and administration, Liff, Walsh & Simmons provides expert, responsive legal services to middle-market businesses, their owners, operators, and investors across the mid-Atlantic region. Our attorneys are subject matter specialists in business counseling, contracts and transactions, commercial and civil litigation, real estate, employment, banking and finance, real estate, land use and zoning.