Titling assets correctly is an essential part of a successful estate plan. Title controls how assets pass at the owner’s death. Depending on the title, some assets pass under terms of the Will, by operation of law, or pursuant to a beneficiary designation. While it is an integral aspect of planning, properly titling assets is often overlooked.

Assets titled in the sole name of an individual become part of the owner’s probate estate when the owner dies.  Probate property will pass under the provisions of the owner’s Will, or if there is no Will, to the person’s heirs under the intestacy laws of the state where the owner lived.

When multiple persons own real estate together, the title on the deed will determine not only the rights between the co-owners during their lives, but also how each of the co-owner’s interests will pass on his or her death. Title of real property is usually governed by the law of the state where the real property is located.

Multiple owners may own property as tenants-in-common or as joint tenants with a right of survivorship. These two types of ownership are quite distinct.

When two owners own property as joint tenants with a right of survivorship, upon the death of one of the co-owners, the surviving co-owner will be entitled to the entire interest in the property. On the other hand, if two owners own property as tenants-in-common, on the death of each co-owner, his or her share passes under his or her Will or to his or her heirs at law if there is no Will.

Additionally, in some states, including New York, a married couple can also own real property as tenants by the entirety. This unique type of ownership is only available between married couples. Tenancy by the entirety grants a right of survivorship to the surviving spouse, and affords married couples with additional protections against creditors, which are not otherwise available to other co-owners who hold property as joint tenants.

For a married couple living in a community property state, such as California, other forms of ownership may be available.  Ownership as community property with right of survivorship is similar to a joint tenancy, in that title passes at the death of one spouse to the surviving spouse.  Ownership in this form confirms that the asset is the community property of the couple and not the separate property of one spouse.

POD (payable on death) or TOD (transfer on death) is often an available choice for an investment or a bank account. Both of these designations allow the owner to name a beneficiary on the account who will receive the funds at the death of the owner. Accounts with such designations will pass to the named beneficiary and outside of the owner’s probate estate. Without such designations, the assets in the accounts will pass pursuant to the owner’s Will or to the heirs at law.

Finally, other assets like life insurance or retirement accounts permit the owner to designate a beneficiary in the event of the owner’s death. Similarly to POD (payable on death) or TOD (transfer on death) title, such assets will not be part of the owner’s probate estate and will not be governed by the owner’s Will, but will pass to the beneficiary designated.

With a variety of options available, extra care should be taken whether buying real estate or establishing a new account, and existing beneficiary designations should be reviewed periodically to ensure that the owner’s assets pass at death in accordance with the owner’s overall estate plan.

Equally important when titling your assets is to avoid unintended gift tax consequences.  To be continued…

For more information, please contact our Private Wealth Services team.