Thomas Rulon Estate Planning Newsletter

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Rulon & Matsumoto Estate Planning

There are 4 primary ways in which real estate ownership may be held. One is as a Tenant in Severalty. This means that the real estate is owned by an individual or a trust in sole name and not jointly. Such property is not held in co-ownership with another. The other three types involve a co-ownership between two or more people. A joint tenancy with rights of survivorship is a co-ownership between any number of people, each owning an undivided equal interest in the property. Joint tenancy is much like playing "king of the hill", the last one living owns the entire property. With joint tenancy property, when one person dies, the remaining joint tenants then continue to own the property. The joint tenant cannot leave his interest to his children or other family members. It automatically goes to the surviving joint tenants upon his death. The nex t form of co-ownership is Tenants by the Entirety. Tenants by the Entirety is a joint tenancy limited to husband and wife and does not have the element of right of survivorship. That is, when either husband or wife dies, the property automatically goes to the other and as with joint tenancy, does not go through probate. The transfer is automatic. Tenancy by the Entirety has the added benefit under Hawaii law of being protected from the claims of either the husband's or wife's individual creditors. The only creditor that can attach property held as Tenants by the Entirety would be a creditor of both the husband or the wife. The last form of co-ownership is Tenants in Common. Property held as Tenants in Common may be held by any number of different people in any number of different percentages. For example, one person might hold a 75% interest and another a 25% interest. When one Tenant in Common dies, that Tenant in Common's interest is distributed according to that person's will or if they have placed it in a trust, according to that person's trust. Tenants in Common does not have a Right of Survivorship.

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I have often been asked by widows or widowers whether or not it would be less expensive and less complicated to simply put their assets into joint tenancy with one of their children rather than into a revocable living trust. The answer is a qualified yes. It would be less expensive and less complicated; however, there are some serious potential drawbacks:

1) Creditors' Claims. Your child's tenancy interest in the property would be subject to the claims of his creditors who could attach a lien on the property and force its sale in order to satisfy their claims.

(2) Divorce. In the event your child were to get a divorce, that child's spouse might have a claim to your child's interest in the jointly held property.

(3) Loss of Flexibility. If you later decide that you wish to sell the property, you would need to get your child's permission.

(4) Reversion of Property. If your child were to die before you, the property would revert back to you and than would go through probate at your death unless you were then able to set up a revocable living trust to avoid the probate.

(5) Lost Opportunity . Upon your death, the property would automatically go to your child and you would have lost the opportunity to have that property placed into a generation skipping trust for your child which would then be protected from your child's creditors during your child's lifetime and also pass tax free at your child's death to your grandchildren.

Here are the "Great Myths," as we call them:

Myth 1: "I'm too young to worry about estate planning."

Reality: If you're young, you especially need to map out an estate plan to help protect your loved ones.

Myth 2: "My estate isn't large enough to need estate planning."

Reality: If your estate is fairly small, it will likely suffer a greater percentage of shrinkage from final expenses, probate costs, and so on, than will a larger estate.

Myth 3: "My estate won't be taxed, regardless of its size, because I can use the unlimited marital deduction to transfer all of my assets to my spouse tax-free."

Reality: Poorly planned usage of the unlimited marital deduction can simply postpone estate tax problems until your spouse's death. Without proper use of estate tax planning, your estate shrinkage at that time could be substantial, with your children and grandchildren feeling the losses.

Myth 4: "Most people just have a will; that's all I need."

Reality: Depending upon whose statistics you read, only about 40 to 60 percent of the population has a will, and it's true that a will is a must in every estate plan. But understand, a will guarantees the probate process. To avoid the probate process, use a funded revocable living trust as the centerpiece of your estate plan with a pour-over will as a supporting document, not the centerpiece.