There are a number of ways you can own your property that will avoid the probate process when you are gone:

• Your property can be owned in joint name with another person.

• Your property can be owned in trust.

• Your property can pass by contract and not by your will.

Joint Tenancy

The easiest way to avoid the probate process is to own property in joint name with another person. This is technically known as holding property in joint tenancy. If your property is owned in joint tenancy with another person, title to the property passes automatically to the surviving joint tenant and probate is avoided. It is very common for a husband and wife to own property in joint name. When the first spouse dies, the property belongs to the surviving spouse because the surviving spouse was a joint tenant.

There are two factors you should consider prior to placing all of your property in joint name with your spouse. First, you and your spouse could die in a common accident. If this were to happen, the property would need to be probated because there would be no surviving owner. Second, there can be negative income tax consequences to owning your property in joint name with your spouse. See Chapter 10 for details on the tax consequences of owning property jointly.

Multiple Joint Tenants

You can have a will as a backup to provide instructions on how to distribute your property if you and your spouse die in a common accident. Another way to protect against that risk is to add other joint tenants to your property. There is no limit to the number of persons who can own a piece of property as joint tenants. If you add your children as joint tenants, and you and your spouse die, your property will automatically be owned by your children.

This may sound like a good idea, but there are practical reasons why you and your spouse might not want to do this. When you add someone as a joint tenant to most types of property, you are making a gift of a portion of the property to that joint tenant. For example, assume you have two children, and you and your spouse decide to add both as joint tenants on the deed to your home. When you do this, you are making a gift to the children. Depending on the value of the property, this may generate a gift tax to you and your spouse for the value of the property transferred to the children. It also means your children do not get the advantage of a step-up in basis upon your death. See Chapter 10 for an explanation of cost basis and a step-up in basis.

If you and your spouse decide to sell the property after you have added your two children as joint tenants, half of the sale proceeds must be paid to the children, since they own half of your property. You also can't change your mind. You have given half of the property to your children. If you want the property back, the children don't have to give it to you.

Unexpected Results

There are several other things you should consider before you add other people as joint tenants to your property. Joint tenancy can have unexpected results. For example, if you add your two children as joint tenants to your property and one of them dies in a common accident with you, the property will belong to your one surviving child. The child who died with you may be survived by her own children. If you had wanted those grandchildren to share the property, it will not happen.

When you own property in joint name with someone other than your spouse, the income tax consequences may or may not be negative, depending on your circumstances. There are also estate and gift tax consequences to owning property in joint name. While these rules are carefully covered later, you need to be aware of the possibilities now before you jump into a joint tenancy. Be sure to thoroughly research all options and consequences before making any final decisions.