Asset titling is one of the most important — and often overlooked aspects of an estate plan. The manner in which an asset is titled determines how it can be disposed of during your lifetime and who receives it upon your death.
The title of an asset will determine your property rights during your lifetime. It will also determine how that asset is transferred at death: according to your Will, by beneficiary designation, or based on an agreement or state law. The title of an asset is as important in determining who will inherit that asset as the terms of your Will or other estate planning documents. If asset titling has not been coordinated with your estate plan, the terms of your estate plan may never be realized.
You should work with your financial advisor and attorney to coordinate asset ownership with your estate plan, ensure assets will pass to beneficiaries according to your wishes, and that any tax planning becomes effective at your death.
|COMMON TYPES OF ASSET TITLING|
|Sole Ownership||You have complete title to the property.|
|Joint Tenancy With Right of Survivorship||Assets are equally owned by two or more people, each having rights of survivorship.|
|Tenancy by the Entirety||A form of joint ownership only available between spouses.|
|Tenancy in Common||Two or more owners; may have equal or unequal fractional ownership.|
|Community Property||Community property states include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, Puerto Rico recognizes community property. |
Income earned and assets acquired after marriage are considered community assets, and each spouse owns 50%.
|Revocable Trust||Assets owned by a trust pass per the terms of the trust, and are not subject to probate.|
Certain property will pass upon your death by way of a beneficiary designation. These forms are often provided as part of a contract issued by the plan provider for life insurance, annuities and retirement plan assets (e.g., IRA, 401(k), 403(b), 457(b), pension and profit sharing plans).
If you fail to execute a beneficiary designation form, typically the plan will have a default beneficiary, which is usually your probate estate. There may be income tax considerations when naming beneficiaries of retirement plan assets.
Some states permit bank or other investment accounts to be held with a “transfer-on-death” (TOD) or “pay-on-death” (POD) designation. When an account has a TOD or POD designation, it will automatically pass to the named beneficiary at the property owner’s death.
For example, a checking account might be titled “Jane Smith POD John Doe.” At Jane’s death, the checking account will automatically pass to John automatically without going through probate.
Some states recognize beneficiary deeds (also called transfer-on-death deeds). A beneficiary deed is filed with a deed to real estate, and identifies the person(s) who are to receive real estate following the property owner’s death. The designation is typically fully revocable during the owner’s lifetime. If the beneficiary deed is still in place at the owner’s death, the property passes to the designated beneficiary without going through probate. The property is still included in your gross estate for estate tax purposes.
The tax information herein is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor. Examples included herein, if any, are hypothetical and for illustrative purposes only.
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