Joint Tenancy – A Common Form of Ownership in Minnesota for Real Estate
Most married couples own their homes as joint tenants. In Minnesota, if you own property as joint tenants, and one joint tenant passes away, the surviving joint tenant (aka the surviving owner) will automatically be the sole owner of the property (provided that there are not more than one surviving joint tenants). All that the surviving joint owner will need to do is file an Affidavit of Identity and Survivorship with the County and a Certified Copy of the Death Certificate. This should be sufficient to transfer ownership to the surviving joint tenant.
What Happens When the Surviving Joint Tenant Passes Away?
When the surviving joint tenant passes away, because the property title will be in his or her name alone, and the property will not automatically pass to the rightful heirs, probate is usually needed to determine the rightful successors. As you probably know already, probate is something that should be avoided. Probate is expensive, it is lengthy, and it is time consuming.
How Do You Avoid Probate in Minnesota?
There are basically two triggers for probate in Minnesota. If you own assets in your name alone that do not automatically transfer (by beneficiary designation or joint ownership) that total more than $75,000, probate will be required. For instance, if you own a checking account with $40,000 and a savings account with $40,000, and both accounts are in your name alone, if you die, your family will need probate to transfer those accounts.
The other trigger for probate is owning real estate in your name alone, regardless of the value. In order to avoid probate for your real estate, there are a couple of options.
- Prepare and file a Minnesota Transfer on Death Deed with the County
- Prepare a Revocable Trust and transfer your real estate to your trust.
- Own your real estate jointly with other joint tenants, such as your family members.
Each option has its advantages and disadvantages, which will be briefly discussed below:
Prepare and File a Minnesota Transfer on Death Deed with the County
This is one of the easiest and most inexpensive methods to avoid probate for your real estate in Minnesota. This option is very similar to having a beneficiary designated on a retirement account or a life insurance policy. In Minnesota, you can prepare a Transfer on Death Deed and indicate who you wish to receive your real estate when you (and the surviving joint tenant, if applicable) pass away. In order to be effective, the deed must be executed and recorded with the County while you are living. For individuals or families with limited resources, this option can work well. This option is cheaper than creating a trust. It is also relatively easy to revoke or change so long as you are not incapacitated.
Transfer on Death Deeds in Minnesota are a great tool to avoid probate, but there are some drawbacks to using a Transfer on Death Deed. If you become incapacitated but need to alter the Transfer on Death Deed for some reason, you will not be able to do so. For instance, if the beneficiary listed on your Transfer on Death Deed is receiving state aid, if he or she inherits real estate, they may become ineligible for the benefits they are receiving. In that scenario, you would want to alter the Transfer on Death Deed but may be unable to do so if you are incapacitated. Additionally, if a beneficiary dies prior to the current owner and a new Transfer on Death Deed was not executed before the current owner died, probate may be necessary for that deceased beneficiary’s share. Another drawback to a Transfer on Death Deed is that if you have several individuals listed as the beneficiary, you may wind up with family fights over what to do with the real estate. Having three, four, or maybe more individuals who all must agree on a sale of the property may prove to be a headache for your family. A Transfer on Death Deed will not help you if you become incapacitated. Your family may need to file a Petition for Guardianship/Conservatorship to manage your real estate in that circumstance.
Preparing a Revocable Trust to Avoid Probate for Real Estate in Minnesota
This is typically the most favored method of probate avoidance for real estate by estate planning attorneys in Minnesota. If you create a trust in Minnesota, you can transfer your real estate to your trust. (This does not affect your mortgage and it does not affect your homestead property tax exemption). Transferring your real estate to your trust avoid probate because when you pass away, the real estate is not in your (or your spouse’s) name alone. It is owned in the name of the trust. As such, the terms of the trust will govern who receives the property when you pass away. No probate is needed. Unlike the Transfer on Death Deed in the example above, if you become incapacitated and your real estate is owned by your trust, your successor trustee will be able to manage the real estate in whatever manner your trustee sees fit for your benefit. Additionally, if there is a beneficiary who is receiving state assistance, provisions may be added to the trust to ensure that the beneficiary does not lose any state benefits he or she was receiving.
The cons, or negatives of a trust are that a trust is more expensive and more time consuming to create. You will spend several hours with your estate planning attorney designing your plan. Then you will spend (hopefully) several hours reviewing your plan with your attorney prior to signing your documents. Once your trust is signed, you will need to do additional work to ensure that your assets are retitled in the name of the trust or designate your trust as a beneficiary when you die. All in, there is a healthy amount of work that goes into setting up a trust. However, once completed properly, your family will avoid probate and the $6,000 to $12,000 a simple probate will typically cost. You will also be able to avoid guardianship and conservatorship if you become incapacitated and can’t manage your own affairs. In that scenario, your successor trustee will be able to handle your real estate for you.
Joint Tenancy Problems in Minnesota
There are several issues with using joint tenancy to avoid probate. First, if both joint tenants die simultaneously (e.g. husband and wife in a car crash), you will need probate to transfer the property to your children. Second, joint tenancy merely delays probate. Recall from our prior discussion above that if one spouse dies, you avoid probate at that first death. However, you will still need probate when the surviving spouse dies.
Adding Children to Your Deed as Joint Tenants in Minnesota
I am also asked quite often, “Can’t I just add my kids names to my deed to avoid probate if both my wife and I die?” The answer to that is, yes, you can, but you might regret it. What happens if your child (or children) whom you added to your deed gets divorce, goes bankrupt, or gets sued? Now your real estate is an asset available to your children’s creditors, including ex-spouses. This is a bad situation to be in.
Selling Property as Joint Tenants in Minnesota
Additionally, what happens if you want to sell the property? If you have added your children as joint tenants, they too (along with their spouses if they are married) will need to sign off on the deed to the new owners.
Incapacity Issues with Joint Tenancy in Minnesota
If any of the joint tenants become incapacitated and unable to sign legal documents, your family may need to petition the court for guardianship or conservatorship proceedings to be able to sign on behalf of the incapacitated joint owner.
Gift Tax Issues with Adding Children to Your Property in Minnesota
Another often overlooked issue with adding your children’s names to your deed to avoid probate in Minnesota is that you are making a gift to your children. Whatever their fractional ownership interest is in the property, they have received a gift from you in that amount. With real estate, this often means that the gift transferred to the child is in excess of the annual exclusion amount (currently $15,000 per year, per donee for 2018). As such, you will need to prepare and file a gift tax return.
As you will likely conclude from the discussion above, using joint tenancy to avoid probate in Minnesota is generally a risky strategy. Spending the extra time and money to prepare a properly thought out estate plan that includes a revocable trust is usually the smartest strategy depending on your family’s circumstances. While not cheap, when you compare the cost of probate, guardianship, conservatorship, or the other issues described above, you may save your family thousands, if not tens of thousands of dollars by creating a trust to avoid probate rather than relying on joint tenancy.
Zach Wiegand is a Burnsville estate planning attorney and the owner of Gold Leaf Estate Planning, LLC. Gold Leaf Estate Planning is an estate planning law firm that also handles probate and trust administration in Minnesota. We serve the Twin Cities metropolitan area with a focus on estate planning for clients in Burnsville, Eagan, Savage, Prior Lake, Lakeville, Apple Valley, Eden Prairie and the South Metro. The firm also handles probate in Dakota County, Washington County, Scott County, Hennepin County, and Ramsey County. Zach was named a Minnesota Super Lawyer – Rising Star for both 2017 & 2018 and he is a member of WealthCounsel – a national organization of estate planning attorneys dedicated to practice excellence. You can contact Zach via e-mail at firstname.lastname@example.org or by calling (952) 658-6503. Gold Leaf Estate Planning is located in Burnsville at 3000 County Road 42 W., Suite 310, Burnsville, MN 55337.