A “Poor Man’s Trust” May End Up Being The Most Expensive Trust

There are several ways to leave property after your death.  One of the most common and least expensive methods is by designating a beneficiary.  Once upon a time this could only be done on financial accounts and life insurance, but now, in California at least, it is also possible to designate a beneficiary on real estate as well.

If everything goes perfectly as planned (people die in the anticipated order, everyone is honest, etc.) this is not a bad way to go.  However, things seldom go as planned.  If the named beneficiaries do not die in the anticipated order, what happens?

What happens if the principal loses capacity and someone tricks them into changing the beneficiary, or forges the signature?

As for transferring property by a special beneficiary deed, again, if everything goes according to plan, this is an option.  But why take the risk? There are a number of things that can go wrong.  There are a number of deadlines that need to be observed.  In my opinion the pitfalls outweigh the potential benefits.

Another  common method of transferring real estate is to add the children to the deed.  Personally, I do not think this is a good idea for a couple of reasons.

First of all, if you add your child or children to the deed, you are giving up not only ownership, but control as well.  No matter what the children say at the time their names are added to the deed, once they are legal co-owners they are legal co-owners.

If one of the children were sued after causing an accident the home might be lost in a lawsuit.

One of my client’s was forced to file bankruptcy when the spouse had do stop working due to medical issues.  Years earlier my client’s mother had added his name and his brother’s name to the deed.  The mother had attended a seminar and was told this was the best way to avoid probate and save attorney fees.  That certainly was not the case here.  Because of the mother’s actions my client had to take $25,000.00 from his retirement to pay the bankruptcy trustee.

In my opinion, after more than thirty years of practicing law, the best and smartest way to transfer property at death is through a revocable trust.