In estate planning the titling of assets is often the most important consideration of how those assets will be distributed upon death. If you have not taken time lately to review how all of your assets are titled and how beneficiaries are designated, it can be a useful exercise.
Let’s look at a few examples:
Brother and sister own a piece of real estate as tenants in common. Many people think that this titling means that brother and sister own this “jointly”, however there is a very important distinction. If brother or sister die, the other party will not be the sole owner. The deceased sibling’s share will pass through their estate. If they have a will, it will go to who is designated in the will. If they do not have a will, the state laws will control the distribution through “intestate succession”. The result can be that now sister owns the property 50%, and the other 50% owned by any number of brother’s heirs, maybe spouse, children, grandchildren, significant other, etc.
Three small words on a deed can dramatically change the outcome. Those words are “as joint tenants”. If the deed stated that brother and sister hold the property “as joint tenants” then upon the death of one sibling, the other sibling will be the sole owner.
Joint ownership is ok in some cases, but can be problematic in others. For example, any jointly owned property may be subject to the other owner’s creditors. So if brother has creditors, they can pursue a judgment against the property owned by brother and sister together. In a different example that I often see is when a parent adds a child as a joint owner on a bank account. Upon that parent’s death the joint owner child is the sole owner. That asset will not be distributed through the terms of any trust or will. This can cause problems if there are other children named in the estate planning documents.
On the other hand if an asset is titled solely, we do not have any of the problems of joint owner, or tenancy in common ownership, but that asset will have to pass through probate upon that sole owner’s death. Probate is the court supervised process of transferring title of assets. Probate is designed to protect the deceased person’s wishes, however probate can often be expensive and time consuming.
Another way of titling an asset is in a trust. A trust is a legal document that can hold title to an asset, which allows for effective management of that asset by the trustee. A common tool is a revocable living trust that allows the person setting up the trust to be the trustee and beneficiary, so they continue to have complete control over the asset during lifetime, and upon death, the trust terms determine the distribution and the distribution is made without any court probate process.
When setting up your estate plan, the key is often how the assets are titled. Your estate planning attorney can develop the best documents in the world, but if they do not match how the assets are titled, the plan may not work properly. It is important to meet with an estate planning attorney to determine exactly how things are titled and how that may or may not accomplish your goals.