When it comes to estate planning, one of the most important concepts to understand is rights of survivorship. This legal principle can have a significant impact on how your property is transferred after your death, and it’s important to consider its implications when creating your estate plan.
At the Law Offices of Brenton C. McWilliams, we’re here to help you understand the right of survivorship and how you can use it to meet your goals in estate planning.
What is the Right of Survivorship?
Rights of survivorship refer to the right of a surviving co-owner to automatically inherit the interest of a deceased co-owner in a jointly owned property. When a property is owned with rights of survivorship, the surviving owner(s) immediately becomes the sole owner(s) of the entire property upon the death of one of the co-owners.
Rights of survivorship are most commonly associated with a form of co-ownership known as joint tenancy. In Alabama, joint tenancy is created when two or more individuals own property together, and the deed or other legal document expressly provides for rights of survivorship (Alabama Code § 35-4-7).
How Rights of Survivorship Work
When a property is owned with rights of survivorship and one of the co-owners passes away, the deceased owner’s interest in the property automatically transfers to the surviving owner(s). This transfer occurs by operation of law, meaning it happens immediately and without the need for probate or other court proceedings.
For example, let’s say John and Mary own a home together as joint tenants with rights of survivorship. If John dies, his interest in the home automatically passes to Mary, making her the sole owner of the entire property. This transfer happens seamlessly, without the need for the home to go through probate.
The Right of Survivorship vs. Other Forms of Co-Ownership
To fully understand the implications of rights of survivorship in estate planning, it’s helpful to compare joint tenancy with other forms of co-ownership.
Joint Tenancy vs. Tenancy in Common
Joint tenancy and tenancy in common are two common ways that multiple people can own property together. The key difference between these two forms of co-ownership lies in what happens to the property when one of the owners dies.
In a joint tenancy, the surviving owner(s) automatically inherit the deceased owner’s interest in the property through rights of survivorship. In contrast, with tenancy in common, each owner has a separate and distinct interest in the property that can be sold, gifted, or bequeathed to anyone upon the owner’s death. Tenancy in common does not include rights of survivorship.
This distinction is crucial for estate planning purposes. If you own property as tenants in common and want your interest to pass to a specific person or entity upon your death, you’ll need to ensure that your estate plan, such as your will or trust, clearly outlines your wishes.
Tenancy by the Entirety
Tenancy by the entirety is a special form of joint tenancy available only to married couples. This form of co-ownership includes rights of survivorship, meaning that when one spouse dies, the surviving spouse automatically becomes the sole owner of the entire property.
Alabama does not recognize tenancy by the entirety or community property. However, if you own property in another state that does recognize tenancy by the entirety or community property, that property may be subject to the laws of the state where it is located. It’s important to consult with an attorney familiar with the laws of the state where the property is situated to understand how those laws may impact your estate planning.
Advantages of The Right of Survivorship in Estate Planning
Incorporating rights of survivorship into your estate plan can offer several advantages:
Simplicity
Rights of survivorship can make the transfer of assets upon an owner’s death a straightforward process. The surviving owner(s) automatically inherit the deceased owner’s interest, reducing the need for complex estate planning strategies.
Avoiding Probate
Probate can be a time-consuming and expensive process. By owning property with rights of survivorship, you can help your loved ones avoid the hassle of probate for that specific asset.
Continuity and Security
Rights of survivorship can provide a measure of continuity and financial security for the surviving owner(s). This can be especially important for married couples who want to ensure that the surviving spouse has uninterrupted access to jointly-owned assets.
Disadvantages of Rights of Survivorship
While rights of survivorship can be a useful tool in estate planning, there are also some potential drawbacks to consider:
Loss of Control During Your Lifetime
If you intend to create a right of survivorship in property that you currently own, at the time you create the right of survivorship, you’ll need to give an equal interest in the property to the person that you want to have a right of survivorship.
If you want to sell the property later on, that person would need to approve the transaction and would be entitled to receive their share of the proceeds from the transaction. The property is exposed to creditors of the co-owner, including actions for back taxes and judgments from a lawsuit or divorce.
Loss of Step-up in Basis
Since creating a right of survivorship involves transferring the property during your lifetime, it may result in the loss of a step-up on the basis of the property that the person would otherwise receive if they inherited the property upon your death instead. Depending on the gain in value of your property during your time of ownership, loss of the step-up in basis could be very costly for your future beneficiaries.
Loss of Control of Final Distribution
When you own property with rights of survivorship, you may have limited control over the ultimate distribution of that property. The surviving owner(s) will inherit the property, regardless of any other provisions in your will or estate plan.
Unintended Consequences
Rights of survivorship can sometimes lead to unintended consequences, such as inadvertently disinheriting children or other heirs. It’s essential to carefully consider how rights of survivorship align with your overall estate planning goals.
Overriding Other Estate Planning Tools
Rights of survivorship can override provisions in a will or other estate planning documents. This means that if you bequeath your interest in a jointly owned property to someone other than the surviving owner(s), the rights of survivorship will take precedence.
Establishing and Terminating Rights of Survivorship
In Alabama, rights of survivorship are typically established through the language used in the property deed or title. To create a joint tenancy with rights of survivorship, the deed must expressly state that the property is being conveyed to the owners “as joint tenants with rights of survivorship” or use similar language.
In some cases, property owners may also use a survivorship deed to establish rights of survivorship. These legal documents can be used to convert an existing tenancy in common to a joint tenancy with rights of survivorship or to clarify the intentions of the owners regarding survivorship rights.
If property owners later decide they no longer want rights of survivorship to apply, they can usually terminate the arrangement by executing a new deed that expressly severs the joint tenancy or by mutually agreeing to partition the property.
Rights of Survivorship and Estate Planning
When creating your estate plan, it’s crucial to consider how rights of survivorship may impact the distribution of your assets. In some cases, rights of survivorship can be a tool for streamlining the transfer of property and ensuring that your loved ones have immediate access to jointly owned assets.
However, the simplicity of a right of survivorship should be weighed against the potential loss of step up in basis. The tax bill resulting from loss of the step up in basis on inheritance may be much more costly than opting for a more comprehensive estate plan that would avoid the need for probate, such as a revocable living trust.
Additionally, it’s essential to balance the benefits of rights of survivorship with your other estate planning goals. If you want to ensure that certain assets pass to specific individuals or entities, such as children from a previous marriage or a charitable organization, you may need to use other estate planning tools, such as trusts, to achieve those objectives.
At the Law Offices of Brenton C. McWilliams, we have the knowledge and experience to help you navigate the right of survivorship and create an estate plan that meets your unique needs. We’ll work with you to understand your goals, explore your options, and develop a comprehensive strategy that protects your assets and provides for your loved ones.
If you have questions about rights of survivorship or any other aspect of estate planning, we invite you to contact our office to schedule a consultation.
