What you need to know about joint tenancy

Dear Len & Rosie,

My husband of 30 years recently passed away without a will. Our home is in joint tenancy, so I know that an affidavit of death of joint tenant should be recorded with the County Recorder. Our cars were titled both our names, and all our bank accounts were also joint tenancies. Other than a small IRA, of which I am listed as the beneficiary, everything was in both of our names. As I see it, all of our assets now will pass to me and there is simply no estate to probate. Or am I over-simplifying things?

Susan

Dear Susan,

Everything you wrote is pretty much correct, but you are only half way there. You should obtain date-of-death values for any non-IRA securities you own, and you may want to have your home’s value determined, to establish the new cost basis for your assets. But what’s going to happen when you die? If your husband died without a will, you probably don’t have an estate plan of your own. Get one.

If you die without a will, your children, if you have any, will inherit your estate in equal shares by intestate succession. But what if they die before you? Your estate could fall into the hands of minor or spendthrift grandchildren who may not be responsible enough to manage an inheritance. Even worse, if a disabled child or grandchild inherits from you, he or she may lose eligibility for Social Security and Medi-Cal benefits unless the inheritance is held within a Special Needs Trust.

At the very least you should have a will that spells out how your estate is to be divided, a durable general power of attorney for financial decisions, and an advance health care directive so the loved ones you pick can make important medical decisions on your behalf if you become incapacitated.

But what you really ought to do is to create a revocable trust to avoid probate. If your estate is worth, $600,000 upon your death, then a happy lawyer will earn $15,000 in statutory probate lawyer fees. If you are worth $1,000,000, an even happier lawyer will earn a base fee of $23,000, for exactly the same amount of work. Trusts are more expensive to create than wills, but much cheaper to administer.

Why not avoid probate by putting my home into joint tenancy with your children? Don’t do this. Your children may not give it back if you ask for it. A revocable trust will allow your assets to avoid probate on your death while keeping you in charge for as long as you want.

Finally, don’t forget your IRA. You should roll over your husband’s IRA to one of your own. Just don’t forget to name your children as your IRA beneficiaries. If you forget and your IRA pays into your estate when you pass, then the IRA must be cashed in within five years of your death and your children will lose the opportunity to stretch out IRA distributions over their own lifetimes.

Len & Rosie

Son abusing his power as Attorney in fact.

Dear Len & Rosie,

After my father’s death, my mother gave my brother Stephen a durable power of attorney. Mom was never all that good with finances, and all of us agreed that it would be better for Stephen to take care of things in case anything bad happened to her.

Now I am wondering if my brother has exceeded his authority. He borrowed almost all of her life savings, over $32,000, to keep his home out of foreclosure.

Stephen signed a note for the money and agreed to pay interest at 10% per year. Mom has since reduced the interest to 7%. The problem is that she does not even know how much money Stephen pays each month, because he handles all of her finances. Mom hasn’t seen a checkbook or account statement since 1989.

I don’t know what I can do. Mom hasn’t got Alzheimer’s or anything and she seems happy with Stephen handling her money. I don’t know if I should sue or just leave it alone.

Edward

Dear Edward,

Stephen, as attorney-in-fact, has a legally imposed fiduciary duty to your mother. Unless the power of attorney your mother signed specifically authorizes him to self-deal, he cannot loan himself your mother’s money. Of course, if your mother told him that it was OK to borrow the money, than it is perfectly legal.

An interest rate of 10%, or even 7%, is downright generous these days. Your mother is making more interest from Stephen than if she kept her money in a certificate of deposit, assuming that Stephen is making the payments like he promised. The fact that he asked your mother to reduce the interest rate implies that he is making payments. If he’s lying about it, why would he bother renegotiating the loan?

You said that your mother seems happy with the way that Stephen is handling things and that she even agreed to lower the interest on the money he borrowed. This is a free country and a competent person can do anything she wants to, even if it is not in her best interests. Still, you should talk to your mother. Make her aware of what you think is going on, and have her ask Stephen to give her the account statements showing his payments and what he’s doing with her money.

Then step back to see what happens. Hopefully everything is above board. If it isn’t, or if Stephen refuses to show your mother the books, then she should fire him. As long as your mother is still in possession of her faculties, she can revoke the power of attorney at any time. Should your mother sue Stephen if he isn’t making payments? Most parents don’t want to see their children get in trouble, no matter what they do. But if your mother is willing to go the distance, she should consult with an attorney and consider suing her son for a breach of fiduciary duty.

Len & Rosie