Attorney David Packard will be presenting at the Maine State Bar Association Summer Meeting as part of a panel titled Mobile Device Forensics. As a Cellebrite Certified Physical Examiner, David can extract data from a mobile device through a forensically sound process, making the device’s contents more easily searchable and exportable in a format that can be used at trial. Evidence contained on mobile devices is being used increasingly in the legal world—particularly at trial or during settlement negotiations—and it is important for lawyers and clients alike to understand how this valuable type of evidence can be properly and effectively used to support their positions. David will be presenting with Justice William Stokes and Judge Charles Dow in a panel about emerging issues in mobile device forensics on June 23, 2017 at Sugarloaf in Carrabassett Valley, Maine.
When planning for the future, I often hear property owners ask: Do I really need to create an entire estate plan, or can I just handle my real estate by adding my child to the deed? Adding a child to a deed may seem like a simple way to pass property to the next generation, but it can also lead to many unintended and unwanted complications. A comprehensive estate plan is often a more straightforward and, ultimately simpler, way to handle titled property.
When someone wants to add a child to a deed in order to pass the titled property to that child, the child will need to be added as a joint tenant. A joint tenant has rights of survivorship, which means that when one joint tenant dies, the property passes automatically to the other joint tenant(s) outside of probate. Sounds pretty simple, right? Unfortunately, this option is often only minimally advantageous in Maine (i.e., probate is generally simple and relatively inexpensive in Maine, there are other ways to achieve better privacy, and this option does nothing to avoid estate taxes) and can result in a number of unwanted challenges.
First, any joint tenant may sever the joint tenancy and sell his or her interest in the property to whomever he or she may wish. Do you really want your child to have the flexibility to sell his or her interest in your home while you are still living in it? Or to sell an interest in your investment property while you are still reaping the income from it? Even if you trust that your child will not sell his or her interest in the real estate, what about his or her creditors (ones you may or may not know about)? As a joint tenant, his or her creditors have the ability to attack your child’s interest in the property.
Second, your child could complicate or interfere with decisions you want to make regarding the property. For example, if you wanted to sell or refinance the property or place it in a business or trust, your child’s consent and signature would be required for all related documents in order to transfer or refinance the entire property. The requirement of your child’s signature could significantly limit what you are able to do with your property.
Third, if one joint tenant becomes incapacitated, the court may require that a conservatorship protect the interest of that joint tenant, which can lead to unintended complications. For example, if the parent becomes incapacitated, a conservator may challenge actions of the child or expect a child to cover a certain portion of the expenses, which may not have been intended by the parent(s). Likewise, if the child becomes incapacitated, the conservator could challenge the actions the parents are taking regarding their own home or their investment property, even if the intent is for the parents to receive all the benefits such as rental income from the property during their lives.
Fourth, if the property generates income, the income tax obligations will be split among the owners according to their interests. Therefore, if the parents own income-generating property and want to continue to reap the benefits of all of the income for the remainder of their lives, the child as a joint tenant is nonetheless on the hook for income taxes for his or her interest in the property.
Fifth, adding your child to a deed raises issues around gift and estate taxes. Once the interest deeded to your child (together with any other gifts for that year) exceeds the $14,000 annual exclusion, you will need to file a Form 709 indicating the value of the gift in excess of the annual exclusion. This amount will count against the total amount you are able to gift before paying gift and estate taxes. Moreover, a child will take his or her interest as a joint tenant with the same basis the parent(s) had in that interest. As the other joint tenants pass, the child will receive a step up in basis only on the interests that pass as a result of the death of the other joint tenants. The step up on each interest will be equal to the value of that interest on the date of the other joint tenant’s death. On the other hand, when the child is not added as a joint tenant, allowing the property to pass at the time of death, the child takes the entire property with a step up in basis equal to the value of the property on the date of death. This difference in basis could have a significant impact on the amount of taxes owed by your child if he or she decides to sell the property.
Sixth, because one’s Last Will and Testament does not have any impact on property held in joint tenancy (because the property automatically passes to the other joint tenants on the deed no matter what any joint tenant’s Will may state), you run the risk of unintentionally disinheriting other individuals or creating a disparity in inheritance where none was intended. This is especially true when one experiences a major life change such as divorce, the birth or adoption of a child, or a marriage after creation of the joint tenancy.
Ultimately, creating a joint tenancy can be an easy way to transfer property on death while avoiding probate with respect to that particular property. However, it is important to be informed about the issues that can arise when adding a child to a deed. An attorney can help you develop a plan that will pass your property according to your wishes.
Tamlyn M. Frederick is an estate planning attorney at Frederick, Quinlan & Tupper in Portland, Maine.