1. No creditor protection is available when property passes by joint tenancy.  Creditors come in many shapes and sizes these days.  Jury verdicts in even the most common accidents easily exceed insurance limits.  Aging survivors are more susceptible to lapses of concentration while driving or otherwise.  All of the survivor’s assets are exposed to creditors when assets are in joint tenancy.  A trust based plan can provide creditor protection to your spouse or your descendants.  This valuable protection can not be purchased at any price if you miss this planning opportunity.
2. Defeats an Estate Plan. Property in joint tenancy passes to the joint tenant even if your Will indicates a different result.  Heirs other than the joint tenant get nothing.  If the joint tenant tries to distribute property to other heirs there will be a gift tax consequence.
3. No estate tax protection for post-death appreciation is available if joint tenancy is used.  Although the asset will pass to your spouse estate tax free; upon the death of the survivor the entire estate is exposed to estate taxes and the tax exemption normally available to the first decedent will be lost.  If your estate (including life insurance) is likely to exceed the Applicable Exclusion Amount (scheduled to return to only $1,000,000 in 2011) then you have unnecessarily benefitted the government at the expense of your descendants.  However, if a “credit shelter” trust plan is utilized, the decedent’s estate, will escape taxation no matter how much it appreciates before the death of the surviving spouse.
4. Reduced protection from accumulated capital gains. Individually owned or community property receives a “step up” basis to fair value at the date of death and your heirs can sell the property and pay no capital gains.  If property is held as joint tenants, the joint tenant avoids probate, but receives the favorable “step up” basis treatment on only one-half of the property.
5. Lack of control. A joint tenant has no control over what happens to the property after death.  A surviving joint tenant can sell or transfer the property, or can pass it to the survivor’s choice of heirs, including subsequent spouses.  Joint tenancy deprives you of the assurance that your property stays in your bloodline.  Without any further planning, property owned by a surviving joint tenant will pass automatically to the heirs of the survivor.  If the survivor’s heirs are not the same as the decedent’s heirs, an undesirable result may occur.
6. Guarantees public probate proceedings. Although there will be no probate administration when the first joint tenant dies, then (unless the survivor creates a new plan) a public probate proceeding will be necessary to complete the transfer of the property upon the death of the survivor.
7. May subject you to expensive and potentially devastating results. Joint tenancy property is fair game for your joint tenant’s creditors.  Although you may have an opportunity to prove your property was placed into joint tenancy for convenience and that the property really does not belong to the debtor, you are exposed to the expense and uncertainty of litigation.

Don’t let any of these fatal problems befall your family.  Call our office today to discuss other, more reliable options for passing on your assets.

The Will is invalid because the testator was incompetent. Competency is a complicated issue.  My friend Jay Polk has written a treatise that is more than 100 pages long describing the different tests for competency in different probate settings.  For a will to be valid, the maker of the Will called the “testator” must meet 3 tests:

1. The ability to know the nature and extent of his property;
2. The ability to know his relation to the persons who are the natural objects of his bounty and whose interests are affected by the terms of the instrument; and
3. The ability to understand the nature of the testamentary act.

This is fertile ground for disputes and must be determined on a case by case basis which is what makes such contests expensive.  Often a forensic geriatric psychologist testifies after reviewing the medical records, and treating physicians may be called to testify with varying degrees of success depending on the nature of their specialty and the degree of contact.  Lay witnesses and the nature of the Will itself may be important elements of proving a testator’s competence.  In the end it is a facts-and-circumstances decision for which very little assurance can be given at the beginning of the case; even in some of the more outrageous cases.

Undue influence was exerted on the testator. The second most popular reason for litigation is an allegation that someone exerted undue influence on the testator so that the Will does not represent the testator’s true intentions.  Any time property is not left strictly to bloodline descendants in equal shares, this issue may arise.  Expensive battles ensue over whom Mom loved best or who took care of Mom.  Just about any fact pattern can support a good faith belief of undue influence, but changes to an estate plan on a death bed or after entry into a care facility are particularly fertile fields for such claims.

The original Will cannot be found. This is not often asserted in Arizona because a copy of the Will can be admitted to probate if certain conditions proving its authenticity exist.  But it can lead to a full contested matter as to whether those conditions exist.

The Personal Representative is not fairly liquidating or distributing the assets of the testator. An increasingly common concern is that the person selected to administer and distribute the estate does not do so either in a timely or equitable manner.  Unlike the issues described above, this is an issue that arises only after the probate has been opened and the administration has not proceeded the way a distributee expected or desired.  Although efforts to remove the Personal Representative are common, those actions seldom end well for anybody and it is more common to get a court order compelling the Personal Representative to complete the work.

All of these issues could be avoided or minimized if the testator began early enough to make and update a plan, and kept all the distributees informed along the way.  Because disaffected relations are so common, the best prevention is to have a clear Will or trust that leaves little room for dispute, and name a Personal Representative whose loyalty and understanding of the complex family relationships is unquestioned.

Even in the best of circumstances, probate contests are inevitable and the best results are often obtained when the parties are reasonable, think about the result before engaging, and pursue a course that is likely in the end to be the most palatable to all litigants.  Otherwise, a full blown Will contest will be expensive and protracted.

As an estate planner since 1979, I encourage my clients to create an estate plan that takes into consideration not only the nature and size of their estate, but the hopes, dreams, aspirations and the character of their heirs and others interested in their estate.

If all goes as intended, everyone is either satisfied or at least left without reasonable grounds to become embroiled in an expensive controversy.  However, all too often, estate plans are not properly implemented–with costly and often destructive results.

Leo Tolstoy opens Anna Karenina (1961) with the now famous saying “All happy families are like one another, each unhappy family is unhappy in its own way.”  That sums up probate and probate litigation.  Well adjusted families come together after the death of a patriarch or a matriarch to console one another and then transition the wealth remaining after paying the bills in accordance with the decedent’s intentions expressed by a Last Will and Testament, a trust, or variety of other devices using beneficiary designations.

On the other hand, in contested probate matters, the litigants are often distantly related or not related and often don’t even know one another.  They seldom share a functional emotional bond and they have no familial reason to reach a reasonable solution.

As a result, other feelings become paramount, usually greed, but sometimes hurt emotional feelings that remain unresolved interfere in rational thinking.  The process frequently snowballs out of anxiety and lack of good information.  Usually the emotions, greed or otherwise, escalate before the litigants seek legal counsel and the litigants become emotionally entrenched in their positions, however unreasonable.  This phenomena was recently explored in an Augusta Chronicle article that described why a current estate plan was crucial to avoiding probate contests.

Lawyers are served up on the horns of a dilemma.  Their new client is entitled to competent legal representation and such representation may cost more than the amount in controversy.  Litigation is expensive with probate litigation fees for experienced counsel often between $300 and $400 an hour.  Additional experts are usually required.  If the competency of the decedent or the due execution of the Last Will and Testament is involved, there will be doctors and other experts involved, as well as fact witnesses to be deposed.  Litigants need to be aware of the potential costs before proceeding; and rational solutions–however unfair–suggest themselves when a small amount of money or property is in question.

Mediation is often a good solution, and most efficient if conducted early in the litigation before legal fees and costs run amuck.

A litigant’s best friend is an experienced lawyer who understands the probate process and the probate law, who can reasonably forecast the likely results, and who works toward that result in as uncomplicated a manner as possible.  In addition to the usual questions about how the lawyer charges, how long he has practiced law, and what qualifies him or her to represent you in this matter, good questions to ask before hiring a lawyer for a contested probate matter include:

• Describe your specific recent experience in probate matters.
• How much of your practice is devoted to probate litigation?
• What do you do the rest of the time?
• After hearing my side of the story, what else do you want to know before forming an opinion of likely outcomes?
• Based only on my story, what do you perceive to be the most likely outcome and what other outcomes are reasonably possible?
• What factors determine my total overall cost and what do you reasonably expect the cost to be if the case follows the path you anticipate?
• If more than 1 lawyer is to work on my case, how will those lawyers bill for their time?
• What additional facts would change your mind about the outcome or the cost?
• Do you carry malpractice insurance and if so in what limits?
• Have you ever been subject to professional discipline?  And if so, explain.

In my next post, I will explain some of the common types of contested probate litigation and how to avoid them.