What does Probate Mean?
A legal procedure done after an individual’s death primarily concerned with distributing the deceased’s estate among the right, deserving beneficiaries is called Probate. The process is often cumbrous due to the court’s requirement of so many filings. It is often accompanied by overwhelming paperwork and can be lengthy, sometimes dragging on for years.
In the presence of a will, probate proceedings will include locating and authenticating the will, contacting the beneficiaries named in the will along with the close relatives, including spouse, children, former spouse, children from a former spouse, etc. Furthermore, any mortgage or unpaid bills of the deceased are also paid off from the deceased estate. Then, the estate is handed off to the beneficiary or beneficiaries named in the will.
In case of intestacy (a situation where the deceased has no will), the deceased’s estate is distributed following the directive of the probate court of the respective state (inheritance typically falls to their heir or next of kin). One can, however, successfully avoid probate by utilizing a revocable living trust rather than a will.
Who is a Tenant?
A tenant is an individual who occupies land or a certain property rented from a landlord, the property typically being a house or a shop. The tenant is expected to pay the landlord or his caretaker rent (either monthly or yearly) throughout the tenancy agreement.
Two Probate and Tenant Problems You Should Know
When legally dealing with tenancy, there are different scenarios. States have varying laws for each case, which usually depend on the accessibility and non-accessibility of a written will. Normally, tenancy issues come in two major types, which we’ll consider below.
Tenancy in Common
Tenancy in common means that two or more individuals jointly own a particular property. The partners don’t always need to have equal ownership. For example, one can have 60% ownership, and the other can have 40%. But both the owners, no matter how unequal their possession is, are allowed to use the property.
Usually, this type of unequal ownership is found in unmarried couples, where one of the partners contributes financially more to the property than the other. The tenants have a full legal right to transfer their share of the property to whoever they want in their lifetime, without requiring consent or permission from the other partner. Even after their death, each tenant reserves the right to name anyone they desire as the owner of their share of the property in their will. They are also free to include their share of the property in their estate plan.
However, a problem typically arises when the deceased’s portion of the property, based on the tenant-in-common agreement, is only documented in his name. There are two ways for the controlling interest in the home to pass through the probate estate in this situation, regardless of whether the deceased person left a will.
One of them only applies if the decedent left a will. In this instance, the beneficiary specified in the decedent’s will gets the deceased’s ownership interest. If there is no testament, the state’s intestacy laws are followed, and the deceased’s part of the tenant-in-common property is distributed to the deceased’s legal heirs. When a decedent passes away without leaving a will or other estate plan, spouses and children are typically the first to inherit. If the tenant-in-common property isn’t real estate, the intestacy laws of the state where the decedent resided at the time of death shall apply.
Moreover, in the event that the decedent had a’ Revocable Living Trust’, probate is successfully avoided. The tenant’s stake would devolve to the beneficiaries listed in the trust instruments without needing a court or other formalities.
Another important thing to remember is that if the decedent had any mortgage, debts, or unpaid bills, then the estate would not be responsible for paying off the mortgage if the loan was in joint names. Only if the property is solely owned can the decedent’s estate be used to pay off debts.
Joint tenancy means that two individuals own a property jointly. They have equal property rights. Joint tenancy is often utilized for financial accounts such as bank accounts as well as with tangible property, like real estate. However, unlike tenants in common, if one of the owners dies, the existing owner will by law automatically become the entire owner. Probate is not required in such a case. Even if one of the tenants mentions someone they want to inherit their share of the property held in joint tenancy, the will is ignored, and joint tenancy’s right of survivorship is followed.
This type of tenancy is commonly seen in married partners. It includes what we call the right of survivorship, which eliminates the legacy if a tenant should try to pass their share of the property to someone else in their estate plan.
To avoid probate, people often opt to own property under joint tenancy. While this may seem like a huge benefit, joint tenancy also has certain disadvantages. For instance, probate may be required if both owners pass away simultaneously in a vehicle accident. Therefore, it is incorrect to claim that joint tenancy completely escapes probate. Instead, it only serves to delay it. The surviving owner, usually a spouse or child, inherits the entire property upon the death of either owner without the need for subsequent probate. However, the property still must go through probate when the survivor passes away.
Furthermore, when a property is held in shared tenancy, the surviving owner does not benefit from a tax basis step-up.
In conclusion, when making decisions regarding the ownership format you intend to utilize, that is, joint tenancy or tenants in common, you should clearly understand their pros and cons. We also advise that you commit time to understanding the probate dealings of both tenancy structures to protect yourself from plunging yourself, your successors, and your estate into a disaster.