Titling Your Assets

Implications for your beneficiaries and estate

Titling your assets is an essential part of estate planning. If assets are not properly titled this can result in probate, delays and confusion, arguments between heirs, and even litigation. Most importantly, if assets are not titled correctly they may not pass to your intended heirs. If you want to make the transfer of assets to your heirs as simple, straightforward, private, and as quick as possible then you must give proper attention to titling your assets.

Title indicates ownership of a given asset. In addition to properly titling your assets, it is important to designate beneficiaries for those assets that you have titled in your name. We will discuss beneficiary designation below.

Why is titling your assets so important? Because your will only affects the disposition of assets that pass through your estate and not directly to your heirs by other means. Titling can determine whether an asset becomes part of your estate—an thus subject to you will—or instead passes directly to another owner (tenant) upon your demise.

Direct transfer—by title or by "operation of contract"—can help shield your assets from creditors and ensure that they pass to your intended heir(s) as quickly as possible, avoiding probate.

Let's review the various types of title.

Joint Tenants with Right of Survivorship (JTWROS, Joint Tenancy)

With joint tenancy, an asset or account is owned by at least two people, and all tenants have an equal right to the assets and are afforded survivorship rights in the event of the death of another co-owner. When one co-owner dies, their portion of the assets pass directly to the other joint tenant(s). Such assets do not become part of the deceased's estate, they are not subject to probate or governed by the deceased's will.

Tenancy in Common (TIC)

"A way two or more people can own property together. Each can leave his or her interest upon death to beneficiaries of his choosing instead of to the other owners, as is required with joint tenancy." (Nolo) This is the default form of co-ownership in most jurisdictions, if no more specific variety of title is specified. What is important to remember about tenancy in common is that if one co-owner dies, their portion of the assets pass to their estate, not to the other co-owner.

As Tenancy by the Entirety (ATBE)

Some states recognize tenancy by the entirety involving married couples. With ATBE, "both spouses have the right to enjoy the entire property, and when one spouse dies, the surviving spouse gets title to the property." (Nolo) There are a few differences here between ATBE and JTWROS or TIC.

• ATBE is only recognized by about half of US states
• ATBE must be between married spouses—JTWROS and TIC need not be between married spouses
• Both parties own the property together as a single legal entity
• Neither spouse can sell or give away their interest in the property without the consent of the other spouse

ATBE—where available—may confer some asset protection in the case of lawsuits. Creditors of one spouse may not attach the interest of another, debtor spouse.

Community property

In community property states, all assets and income belong equally to both spouses, regardless of how they are titled. In these states, specific agreements if ownership of any assets is not shared equally between spouses. Community property, or common law, states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. How assets are distributed upon the death of one spouse in these states varies from state to state.

Individual Ownership

If someone is the sole owner of an asset, then right of survivorship cannot exist. Therefore assets under individual ownership pass to the owner's estate upon their death—if no other provisions are made. In this event, the deceased's will becomes important. However, there are provisions that exist to arrange for direct transfer or payment upon death, bypassing the estate and probate.

Pay-on-Death (POD)

For certain types of account (for example,non-IRA bank accounts and CDs), a beneficiary can be designated under a pay-on-death provision. In this case, beneficiaries receive payment automatically upon the owner's death.

Transfer-on-Death (TOD)

Certain kinds of securities or non-IRA investment accounts allow for transfer-on-death designations (TOD). With TOD, your beneficiary needn't be a single individual—ou can specify a number of beneficiaries and the percentage of assets you'd like them to receive. Furthermore "with TOD registration, you maintain complete control of your assets during your lifetime. Your named beneficiaries have no access to or control over your assets as long as you are alive." (Investopedia/Forbes).

TOD is not recognized by all states, and is governed, where it exists by state securities laws. "State law, rather than federal law, governs the way securities may be registered in the names of their owners. Most states have adopted the Uniform TOD Security Registration Act, although some have modified it. In addition, brokerage firms may decide whether or not to offer TOD registration." (SEC)

Naming Beneficiaries

Many kinds of assets—and life insurance policies, of course—allow you to name beneficiaries. In most cases you can name primary and contingent beneficiaries. We cannot overstate the importance of making sure your beneficiary designations are as you intend and up-to-date. There are many unfortunate examples of assets going to people other than those intended when beneficiary designations are not kept up-to-date. You should have a regular review of beneficiary designations and you should always revise these promptly upon a divorce, birth of a new child, death of an intended beneficiary, or similar life event. And remember, beneficiary designations "trump" whatever you may have in your will. If you fail to name a beneficiary, assets that are not jointly owned will become part of your estate.

Talk to an Expert

With proper titling and beneficiary designations you can speed the transfer of assets to your intended heirs. This is a more reliable, and quicker, method than leaving things to pass through your estate and probate. But whatever the case, always consult with your legal, financial and tax advisors when constructing an estate plan and determining how best to direct your assets to your heirs.

 For more information, please contact Jonathan E. Brochstein at Weston Wealth Strategies—(203) 319-9876 or contact Jonathan via email.

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