The Importance of Titling Assets

By: Gregory J. Cook, EA, CPA Author

 

The way you title your assets can have a major effect on your beneficiaries’ inheritance. Titling of assets can serve a variety of purposes. Titling assets strategically can help speed the process of transferring assets to your heirs, can keep your wishes and finances private and can help ensure that your wishes are followed. In addition to how your assets are titled, it is important to consider naming beneficiaries for those assets that you have titled in your name.

 

Titling Assets

There are a variety of ways to title assets. You can own property jointly with another person or you can own property individually. When you own property jointly, you can title the assets so they automatically go to your co-owner upon your death, or you can each own individual stakes in the property.

 

Joint Tenants with Rights of Survivorship (JTWROS) entitles your co-owner to all of the assets in an account titled JTWROS.

 

As Tenants by Entirety (ATBE) is only recognized in certain states and is only applicable for married couples. Titling assets ATBE ensures that your surviving spouse retains all assets in the account and might provide certain protections in the case of a liability lawsuit.

 

Tenants in Common (TIC) allows each co-owner to retain his or her stake in the account. The ownership then passes to the estate of each owner upon death.

 

You can also own property as an individual. Some accounts allow you to name beneficiaries, rather than having the assets in those accounts go directly to your estate. One way to retain individual ownership of property while avoiding probate on accounts that do not allow you to name a beneficiary is to title the property Transfer on Death (TOD).

 

Transfer on Death (TOD) allows you to retain complete control of the assets during your lifetime while naming a beneficiary upon your death. This form of asset titling is not recognized by all states. TOD accounts remain free from your beneficiary’s creditors, and you can change your beneficiary at any time.

 

Naming Beneficiaries

Certain property, such as retirement accounts or life insurance policies allow you to name a beneficiary. If you fail to name a beneficiary for one of your accounts that you own individually, the assets will become part of your estate upon your death. The problem with this version of an estate plan is that all of the assets will go through a process called probate. Probate is the legal process whereby a court reviews your will and oversees the distribution of your assets. Probate can take several months and could cause your estate to incur fees and expenses that might be avoided by having assets pass directly to your beneficiaries. In addition to potentially avoiding fees associated with probate, naming beneficiaries on accounts will ensure that your beneficiaries receive assets in a timely fashion.

 

By avoiding probate, your wishes remain private and final. There are no public records indicating whom you named as a beneficiary on your accounts. The naming of a beneficiary on an account will supercede any directions given in your will, so it is vital that you keep your beneficiary designations updated. You should also consider naming a second, or contingent, beneficiary. If your intended beneficiary should die before you do, the assets will pass directly to your estate and go through probate.

 

Titling assets and naming beneficiaries are important estate planning techniques. It is important that you review these decisions with a qualified financial professional. You should review these decisions on a regular basis to make sure you are taking full advantage of the benefits available under current tax law.

 

 

 

Word Count: 602