How to Avoid Giving Your Estate to the State

For the vast majority of American homeowners, their home is the single largest asset they will ever own; and like the rest of their financial assets, upon their death, that asset will need to be dealt with. Most likely, if your spouse survives you, ownership of your property will be transferred to your spouse. Depending on how you hold title, this will either happen automatically or your poor spouse will have to deal with the hassle of probate (going through the court system to prove his or her right to your assets).

Before I go further, let me remind you that making decisions about how to hold title or make any decisions about estate planning should be done with the advice of your legal and tax advisor. While I have some experience in real estate, I know nothing about your financial or legal situation and that information is critical to making good decisions.

Now, if you and your spouse hold title as community property with the right of survivorship, then upon your death your spouse will automatically acquire your interest in the property. (If you do not have the right of survivorship clause, the transfer of ownership is not automatic.) If you hold title with anyone in a joint tenancy, then upon your death your interest in the property will be automatically vested with the surviving joint tenants without probate. A new form of ownership made possible by AB-139 is called a revocable transfer on death deed. It allows you to deed your single-family residence (with one to four units) to anyone and have that transfer take place the moment you die. It supersedes other legal documents including a will or trust, and while it shares some characteristics with joint tenancy and community property with right of survivorship, it is unique because the beneficiaries do not have any equity (ownership) in the property until the death of the grantor.

In today’s world, many homeowners have ex-spouses, children, stepchildren, and children who are half-siblings to one another. You need to give considerable thought to how you structure your estate when blended families are involved. For example, you may have significant assets and children, and then get remarried to someone with few assets and no children. Upon your death, do you want your surviving spouse thrown out on the street? Probably not. Generally, folks would like their spouses to be able to live out their days in the home they shared. The monkey wrench gets thrown in when your children resent the fact that your biggest asset does not benefit them until the spouse dies (especially if the spouse is significantly younger than you).

While I won’t recommend specific courses of action with regard to your estate planning, I will recommend that you don’t ignore the need to take care of it. It’s easy to postpone uncomfortable family discussions and spending significant sums on legal advice to make potentially difficult and unpopular decisions, but do you really want to leave such an important financial outcome affecting your entire family left unresolved? This can tear a family apart.

If you don’t have any children or relatives you care to bequeath your estate to, you can still name beneficiaries rather than allowing the state to end up with your hard-earned dollars. Choose your favorite charity, whether it’s a health care organization, the Humane Society, or an institution of higher learning, there’s no lack of options. Ukiah has many worthy causes to choose from. I just can’t see having the fruits of your labor go to the state coffers and that’s what can happen if you choose to skip the estate planning process.

Next week, I’ll share some information what to do before you die to avoid paying unnecessary inheritance tax.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.