All of the assets you own, or in which you have an ownership interest, are part of your “estate.” During your lifetime, you may buy and sell assets as well as watch assets increase or decrease in value. At the time of your death these assets are what will matter for the purpose of probating your estate. Not all of your estate assets will be required to go through the probate process. Given the cost of probate, both in terms of time and money, it is advantageous to keep as many assets out of probate as possible. One way to do that is by jointly titling the property. Not all jointly held property though will avoid probate. Choosing the right type of joint tenancy for real property, as well as the right type of account designation for other types of assets, is the key to maximizing the benefits of joint ownership.
Types of Joint Ownership for Real Property
In the State of Illinois, real property can be jointly owned in several different ways. Understanding how each option operates, along with some of the most important advantages and disadvantages of each type, is important when deciding how you wish to title real property that you co-own with someone else.
In Illinois, when the type of joint ownership is not specified, title to the property will default to being owned as tenants in common. You may also intentionally choose to own property as tenants in common. In fact, titling property as tenants in common is usually the preferred option when the owners of the property are business partners or have a relationship other than familial in nature. If you own property as a tenant in common it means you own an undivided fractional interest in the property. Though property owned as tenants in common is not physically divided, legal ownership of the property is effectively divided. If one owner dies, the decedent’s interest in the property becomes part of his/her estate, meaning it does not transfer to the remaining owners.
When real property is co-owned by spouses, or other family members, it is much more common to title the property as tenants in common with rights of survivorship (TCRS) or as tenants by the entirety (TBE). Only spouses may title property as TBE. One if the primary advantages to owning property as TCRS or as TBE is that is allows the property to avoid probate upon the death of one co-owner. Imagine, for example, that you and your father own a tract of land as TCRS. Upon your father’s death, his interest in the property would automatically transfer to you without the need for the property to go through probate first. The same applies if you and your spouse own property as TBE. One important aspect of owning property as TCRS of which you should be aware is that because you essentially “share” ownership of the property, instead of owning an undivided interest in the property, creditors of any owner can potentially reach the property. Likewise, one co-owner could potentially sever the co-ownership by selling, or otherwise encumbering, his/her ownership in the property. An important advantage to titling property as TBE, when possible, is that creditors can only attach he property if they are a creditor of both spouses.
Co-Ownership of Other Assets
A discussion of jointly owned real property should at least touch on how other assets can also be co-owned in the State of Illinois, particularly because when titled correctly other co-owned assets may also be able to avoid probate. If you wish to allow a beneficiary immediate access and ownership to a financial account or securities owned by you upon your death, you may wish to change the account designations to “Payable on Death” (POD) and/or “Transfer on Death” (TOD). Most financial accounts can be titled as POD accounts while many securities can be titled as TOD. In essence, the two designations operate basically the same way. As the owner of the account you name a designated beneficiary. Unlike jointly held real property, your designated beneficiary has no ownership rights to the account while you are alive. Upon your death, however, ownership of the account is immediately transferred to the beneficiary without the need for the account to go through probate. Titling a financial account as a POD account is an excellent way to provide loved ones with immediate access to liquid assets after your death.
For more information, please join us for one of our upcoming seminars or contact the experienced Illinois estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.