Question:

If you hold property in joint tenancy, do you still need a living trust in order to avoid probate? My husband and I hold two properties in joint tenancy with my mom. In addition, her checking and savings accounts are held jointly with me. My tax planner told me that I still need to do a living trust as "insurance" because my brother (the only other heir) could contest the joint tenancies.

I am now very confused because I thought joint tenancies completely avoided probate and that the property interests were automatically transferred to the surviving tenants.

Answer:

Sorry, but insurance like that just isn't worth buying. If your brother could challenge a joint tenancy in court, he could challenge a living trust, too. That's because his reasoning would be the same: probably that you exercised undue influence over your mother, or that she didn't understand what she was doing, and as a result he was cheated out of his rightful inheritance.

However, if your mom put her property into joint tenancy with you only to avoid probate—and her goal was not to give you half ownership of everything now—a joint tenancy is not the best method. For starters, if the value of the interest she gave to either you or your husband exceeded $17,000 (the annual gift tax exclusion) in one year, she was required to file a federal gift tax return, though she wouldn't owe any tax right now.

It would have been preferable for her to keep the real estate and create a living trust herself, naming you and your husband as beneficiaries. A living trust is relatively difficult to challenge, because your mom's continuing involvement with trust transactions would help to show that she understood what she was doing. With the bank accounts, an easy way to avoid probate would have been to name you and your husband as payable-on-death (POD) beneficiaries, using a form provided by the bank.