Every year, during our free 3-year reviews, without fail, we find that a few of our clients have inadvertently placed a piece of real estate in danger of going through probate.
When interest rates drop, like they have in the past few years, many people rush to refinance and significantly reduce their mortgage payments, or pull equity to buy a new investment property.
What most people don’t realize, is that whenever you refinance a property, most banks will make you take it out of the trust and put it into your individual name(s). There’s no real legal reason why they do this, but they often cite the unauthorized practice of law to cover themselves. Very, very few banks will let you keep it in the trust.
Once it’s out of the trust, it is your responsibility to put it back into the trust.
Most, if not all realtors, are explicitly told by their brokers never to give advice on how to hold title. The way in which title is held, can have tax consequences for which the broker could ultimately be liable.
Since most banks will not let you title the property directly into your trust and your realtor cannot give you advice on how to hold the title to the property, quite frequently the property will be titled in your individual name(s), and not protected from probate by your trust.
Adding Someone to Title
There are times when you may need to add someone to a property; like when you take on a new partner or partners in an investment property. Unfortunately not all people or services who can prepare a property deed should be preparing them. Since property deeds have real tax consequences, you should always consult an attorney when having them prepared.
Frequently we see properties being taken out of a trust, and placed back into the individual’s name. We also see bigger mistakes too, like adding a partner with the wrong type of tenancy. They add the partner as a joint tenant, when it should be a tenant in common, and vice-versa. Things like this matter, not only because of probate, but if the property is titled incorrectly, you could end up accidentally disinheriting your kids.
This is probably the most dangerous mistake people can make with their property, and we encourage you to learn more about the problems with joint tenancy.
To put it plainly, if the property is in your name, and you die, this will trigger a probate.