Asset transfers are made for a wide range of legitimate business, estate planning and other reasons. How assets are titled can make all the difference between effortless, prompt transfers or having costly and often uncertain results. In the estate planning context, it’s important to get it right before you need it. Sometimes forms designating beneficiaries (and perhaps forgotten) or how deeds or accounts were set up will completely override what’s stated in a Will or other testamentary documents. Lifetime transfers of business and personal assets can also be done with far greater ease when assets are properly titled, not leaving the door open for more costly delays or other unpleasant surprises.
When attorneys talk about “titling” assets, we’re talking about who the “legal owner” is. Married couples will often own real estate as joint tenants with rights of survivorship (JTWROS). So when a spouse passes away, the title vests 100% to the surviving spouse with ownership passing immediately to the surviving spouse. This applies to any property provided the property is property titled in “survivorship”.
Alternatively, property is sometimes acquired or owned as “tenants in common” (TIC). When, for example, multiple family members or unrelated individuals own property acquired through an inheritance or for investment purposes with each holding some specified share of the property. Property owned as TIC is freely divisible whereas property owned in survivorship is not. If a TIC owner dies, their share will be transferred in accordance with their Will (or Trust or if owned by a business, as designated in the governing documents) to the named beneficiary. (If there is no Will or the Will is invalid even bigger problems can arise under state intestacy laws). Lifetime transfers of TIC properties can pose challenges for the owners who now hold title with who knows who – since interests are freely divisible (unless there is a first right of refusal retained by the other owners in a valid document). Trusts (or other agreements) can also be utilized by individuals or businesses to provide more seamless transfers.
Property is sometimes held in a sole individual name. Property owned solely or “individually” at the time of death is considered a “probate asset” requiring a court order to transfer the property; subject to a few of the exceptions if property is deeded though Trusts and properly recorded, etc. After the death of a spouse, a surviving spouse, who owns the property in her sole name, may wish to create a trust or other testamentary instrument so that property will not require probating and pass directly to heirs.
Each of these types of ownership interests will have dramatically different results so how to hold title should be carefully considered. When titled properly, real estate, bank accounts and other assets can pass immediately to co-owners, survivors and beneficiaries, after death, without the delay or the involvement of probate court. In the estate planning context, it’s extremely important to keep in mind that how accounts are titled will override the provisions in a Will. While there are a number of options, how to take title during lifetime ownership will depend on a variety of factors and there are instances where jointly owned accounts may not be advisable. Many people choose a transfer on death (“TOD”) designee (which works like naming a beneficiary in a Will) so the account will pass automatically to the named TOD designee unlike a joint account, which during lifetime could be accessed and completely drained by any of its owners. Joint accounts should be identified as (JTWROS) and, as noted, there are some precautions to point out as any one of the owners can access, withdraw and make decisions on the account – so care should be taken here.
Keeping in mind that named beneficiaries or TOD election will override any provisions in a Will to the contrary, it’s extremely important to keep up-to-date records of beneficiary designations and document how accounts were set up. Too often bank records aren’t correct, documents are lost or people forget to update beneficiary designations. Don’t rely on bank representatives or family members to advise you. I’ve seen situations where misinformation was provided to clients or mistakes were made by bank representatives causing unnecessary, lengthy delays, because documents prepared long ago were not done correctly or how they were done was not understood. This can cause assets being transferred in a ways an owner never intended. It’s critically important to make sure there are no inconsistencies with your wishes and that documents are correctly prepared. Otherwise, costly, unpleasant, unintended consequences can and do result. The beneficiary designation (again, properly done and documented) will prevail over any contrary provision in a Will care must be taken! The assistance of qualified legal counsel is important to make sure these avoidable, unintended (and sometimes irreversible) consequences don’t occur.
Preparing documents that meet your needs and reviewing your documents every year or two (or whenever a major life change occurs) is a great way to have peace of mind and feel secure about your future. Everyone regardless of age should have a Will. Anyone who owns a business should have a Business Succession Plan, as well as Will. Having these documents in place before they’re needed is critically important. If something unplanned occurs, it may be too late. Many times clients believe this will be an overwhelming process and are often surprised by how easy we make this process by listening carefully and explaining options. There is often a great sense of relief for accomplishing business succession, estate plans or just having a review or update done to confirm all is well. Regardless of age or circumstances, it’s important that documents be properly titled so they can accomplish important goals. There’s nothing worse than finding out documents you prepared sometime ago may completely override what you intended.
Don’t wait – Please contact us today for assistance in reviewing your documents and goals.