Jan Neal Law Firm, LLC

Alabama Estate, Elder and Special Needs Law


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Unintended Consequences of Failing to Probate a Will

A will has no legal effect if not filed with the court and accepted as a legitimate document meeting the testamentary requirements (which is known as probate).  Many people do not know this, and they do not know that a will must be probated within five years of death.

If the will is not filed within five years of death, then the law of intestacy determines where property passes, and it may result in very unfortunate consequences for the intended beneficiaries.

The best way to explain this is an example:

Mrs. Smith’s husband died last year, and she decided to update her will.  They owned multiple pieces of property, most of which they owned as joint tenants with right of survivorship (meaning that when the first owner dies, the other will automatically own all of the property).  But the one piece of property on which their home is located was owned by her husband without right of survivorship.  Since most people don’t sit around reading deeds after the death of a spouse, Mrs. Smith did not know this until the deeds were produced to rewrite her will.  Her husband’s will left everything to her, so if his will is probated, no problem.  But if his will is not probated within five years, she will own her home property jointly with his children by a previous marriage.  Not only will she be unable direct all of the property to pass to the children of this marriage at her death, if she wants to downsize she will not be able to sell the property without the agreement of her husband’s children by a previous marriage.  And if those children agree to sell, she will only get half of the proceeds from the sale.  This could have been a serious problem for Mrs. Smith if she had not found this need to probate her husband’s will within five years of his death. 

The best practice is to always check to see if a will needs to be probated rather than assuming it does not.  With that said, not all wills need to be probated.  For instance, there may be nothing in the probate estate to pass because all assets were jointly titled in bank accounts, and the home was owned by the spouses as joint tenants with right of survivorship.  But if there is property that does not automatically pass to others, take action sooner, rather than later, to determine what you need to do.


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Selling Life Estate Property

A life estate deed can be a great tool for passing property after death.  A couple might give the property to their children and reserve a life estate for themselves until the last of the two dies.  The couple retains their homestead exemption status for life, and at death the property will automatically belong to the children without the need to probate anyone’s will.  Also the child will have a stepped up tax basis in the property which is the fair market value on the date of death of the last life tenant.  An additional benefit is the fact that Medicaid will not count the life estate as a resource if the life estate deed was executed five years prior to Medicaid application, and the property would not be subject to Medicaid Estate Recovery since it will never be probate property.  That all sounds like a win, win situation, right?

It is, except for one thing.  If the couple decides to sell the property they will need the children to sign off on the sale because the children are now joint owners with the parents.  The parents own use of the property NOW, and the children, as remaindermen, own the FUTURE use of the property.

Often a life estate deed is given with the goal of keeping property in the family, but that is not always the case.  Sometimes the life tenants want to sell the property to obtain funds for any number of purposes. With this in mind, before signing a life estate deed it is important to make sure the remaindermen would be willing to relinquish their interest and sign off on any sale of the property.    


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Titling Property: Why Your Lawyer Needs To See Your Deed

Title to real property defines legal ownership of the property, and that ownership is usually identified by language in the deed showing who owns the property and how it is owned.  Rights associated with property is also a matter of state law and can be altered by marital status. 

There may be multiple times when you will need to decide how to title property – such as when you purchase property or when you give property to others during your lifetime or through your estate when you die.  It is important to understand the different ways property can be owned before you make decisions on how to title it or whether a will may need to be probated.      

The most common ways to hold title are:

  • Sole Ownership
  • Joint Tenancy with or without Right of Survivorship
  • Tenants by the Entirety
  • Tenants in Common
  • Life Estate Tenant
  • Heirship
  • Community Property

Sole Ownership 

Sole ownership is ownership by one individual or entity.  The most common sole ownership is one held by a single person or a married person who wants to hold property apart from his or her spouse.  Sole ownership might also be ownership by a business or trust. 

It is important to realize that even if you are a sole owner, if you are married and the property is your homestead in Alabama, you will not be able to transfer the property without your spouse’s signature on the deed.  It is also important to have your will in place to transfer the property at death since there is no right of survivorship with sole ownership. If you own property alone and die without a will your next of kin will inherit the property through the laws of intestacy (laws defining how property passes without a will).

Joint Tenancy with or without Right of Survivorship

Joint tenancy means that two or more people hold title to real estate jointly, and each has the right to occupy the full property during his or her lifetime.

If one of the owners die, his or her rights of ownership pass to the heirs unless the deed specifically states that the owners are joint tenants with right of survivorship, means that the property will automatically pass to the surviving owner.  This is how many married couples own property in Alabama. 

The primary advantage to joint tenancy with right of survivorship is that the death of the first of the joint owners does not require probate of his or her will.  The property passes outside probate (outside the will) to the survivor.  Expenses of upkeep, taxes, insurance, etc., are shared between the joint tenants. 

You do not often see it, but property owned by joint tenants with right of survivorship can be severed (an owner’s share sold) resulting in the property thereafter being held as tenants in common.

A creditor who obtains a legal judgment against one of the owners can come after the property, requiring it to be divided, to have the debt satisfied. 

Tenants by the Entirety

This method of ownership can only be used when owners are legally married.  This type of ownership is generally not seen in Alabama, but it is mentioned in the code indicating at Code of Alabama § 43-7-4. There it states that:

Where there is no sufficient evidence that two joint tenants or tenants by the entirety have died otherwise than simultaneously, the property so held shall be distributed one half as if one had survived and one half as if the other had survived. If there are more than two joint tenants and all of them have so died, the property thus distributed shall be in the proportion that one bears to the whole number of joint tenants.

Property owned as tenants by the entirety cannot be severed, or one spouse cannot sell his or her share.

You will not own Alabama property in this manner, but you may see it in other jurisdictions such as Arkansas, Delaware, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming.

Tenants In Common

With tenancy in common two or more persons hold title to real estate jointly.  They may own it equally or in unequal percentages.  For example one may own 30 percent of the property while the other owns 70 percent, but despite those ultimate ownership shares, each owner has the right to occupy and use all of the property while the ownership percentages define the financial ownership of the real estate.  If the property is sold, each will get his or her ownership percentage.  Either owner may sell or give away his or her share of the property, and at death his or her share will pass to those named in a will or next of kin through inheritance.  Each owner is responsible for all debts against the property (for instance both or all parties are responsible for all taxes due on the property). 

Life Estate Tenant

You may have the right to occupy property during your lifetime through a life estate, and when you die people called the remaindermen instantly become the owners.  Often in second marriages a spouse will leave a life estate to the widow and the remainder interest to his or her children.  Another situation where life estate interests are seen is when a parent gives the property to children and retains a life estate in the deed.

Heirship

While title is usually determined by the deed, that is not always true.  In the case of heir property you may be living on property that was last deeded to your grandparents whose estates were never legally settled, and there is no deed in your name.  In that event determining how your grandparent’s property passed by operation of law is necessary.  Often this requires tracing family relationships and deaths over the course of several generations to land on who actually owns the property today.  

Community Property

There are nine community property states in the U.S.:  Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.  Alaska is an opt-in community property state that gives both parties the option to make their property community property.  Alabama is not a community property state. 

Community property is a form of ownership by a married couple during marriage that they intend to own together.  Each spouse owns the property equally, and owes any debt against the property equally regardless to who earned the money to purchase the property or incurred debt for which the creditor seeks to satisfy from the property value.  In the event of divorce each spouse will gets an equal division of the property.  In the event of death there is no survivorship unless the couple lives in a state that permits survivorship (Arizona, California, Nevada, Texas, Wisconsin). Outside those community property survivorship states the couple must have a Community Property Survivorship Agreement.  Without living in a community property survivorship state or having a Community Property Agreement each partner’s share will pass through his or her estate.

The take away:

How you own property is just as important as the fact that you own it.  What you can do with property – your rights and obligations – and how you can leave property to your heirs can only be determined by knowing how the title is currently held.  If you are planning on any property acquisitions, transfers or estate distributions, it is critical that you understand how you already own or want to own or have your heirs own property.