Six words that can change your estate plan

If I were asked what the biggest mistake people make when arriving at an estate plan is, I would say it is the belief that an estate plan is only a will.

With this idea in mind often they go on line or call a lawyer’s office and give provisions for a will only. This is a huge mistake. Without a full understanding of assets, their estate on their death could be distributed very differently than intended. The point to remember is that an estate is more than a will.

Six words that could change your entire plan — for better or for worse — are “joint tenants with right of survivorship.” Even fewer words can matter as in “tenants by the entireties.” A third possibility is “tenants in common.”

The idea to recognize here is that wording contained in deeds or not contained in deeds may override what is stated in a will. Here are some examples from experience.

Example One: Parent wants to add adult child to deed on the house. A deed is drafted in the name of parent and child. Everything seems to be in order and the deed is executed properly and properly recorded at the Recorder of Deeds office.

The intent is that, on parent’s death, the entire property would be inherited by the child. Without even considering Medicaid consequences assuming parent never needs Medical Assistance to pay for care, there is another issue. If the deed says “from Mary to Mary and John” without more, then the house would have been transferred as tenants in common.

It is the omission of words that resulted in the default of tenants in common. To accomplish the parent’s goal the deed should have added six words and should have read “from Mary to Mary and John as joint tenants with right of survivorship.” Otherwise, John would continue to own on Mary’s death his one-half undivided share but the other one-half would be owned by Mary’s estate.

Suppose Mary still had a deed stating “from Mary to Mary and John” without the magic six words above but left a will naming John as the only beneficiary. That would be fine except that at some point for instance if John were later to sell the house he might find he would need to probate Mom’s will to establish his claim.

Even more of a problem would arise if Mom left no will and John had other siblings or Mom left a will and named other beneficiaries. In that case John, on selling the house not only would need to file for probate but also would need to consider the claims of the other beneficiaries.

All of this could have been solved by adding the six words “joint tenants with right of survivorship” when the deed was prepared initially.

Suppose Mary only wanted to name John as a co-owner but wanted to transfer her share by will on her death. Then it would make sense to clearly indicate “from Mary to Mary and John as tenants in common” and it would be understood that, on her death the other beneficiaries under her will (or her intestate heirs if there is no will) would also inherit. With no indication either way, however, tenants in common would still be the default.

Example Two: If a married couple owns a property the correct expression is “tenants by the entireties.” The special relationship of married individuals is important especially since it adds creditor protection.

For a creditor to execute against a property owned as tenants by the entireties both spouses would need to have committed to the loan. Neither of them can alienate the title so long as they are married. In other words, the debt of one of them would not endanger the other so long as they are married and so long as the property is not sold unless both committed themselves on the loan.

Example Three: Tenants in Common. Most often when parents leave property to their children in a will the result is tenants in common. This means where, for instance, there are six children to inherit equally, each will be entitled to a 1/6 share. If, after inheriting, a child dies, that child’s share goes to that child’s estate. If there are questions, you should seek help.

Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice to elder law, retirement and estate planning, Medicaid, Medicare, life care and special needs at 790 East Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674 , colliton@ collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs. Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.