How you hold title to your assets is a critical factor in the estate planning process.  If assets are not titled correctly, they may not pass to your intended recipients.  This can lead to increased taxes, disappointment, frustration and even lawsuits among heirs.  A good estate plan can avoid these issues. 

 

When you take title (or change title) to an asset, you should understand the tax and dispositive consequences.  If two or more people own property together, the primary options are joint tenancy or tenancy-in-common. 

 

Joint tenancy means when one owner dies, the other succeeds to ownership of the entire asset.  The deceased owner cannot direct that it pass to anyone else even in their will or trust.  If a tenant-in-common owner dies, his interest in the asset passes as his will or living trust directs. 

 

If you die owning a bank account in joint tenancy with your spouse, it will automatically pass to him or her even if your will says it should go to someone else. If that account is held as tenants-in-common, your interest will pass to whomever is designated in your will. 

 

Assets such as life insurance or retirement benefits pass directly to third parties through a beneficiary designation.  This is true even if your will or trust says otherwise. 

 

Wills pass assets titled in your individual name.  Living trusts pass property titled in the name of the trust or directed to the trust at your death by will or beneficiary designation. 

 

Even if you think you know how your assets are titled, it’s wise to review your titling periodically.  Things change or mistakes can be made.  During the housing boom earlier this decade many title companies were so busy that title mistakes were made.  Many Minnesota properties were mistakenly titled as tenants-in-common (although this is not always wrong).  Most home buyers didn’t realize this had happened.  Make sure you know how your assets are titled and how they should be titled.  If you have any doubts, review your deeds and contact your county registrar to correct any mistakes. 

 

Asset titling and beneficiary designations have income and estate tax implications as well as determining who receives the asset.  They should be carefully coordinated with your overall estate plan to achieve optimal results. 

This article was originally published in The Stevens Advisor, an electronic newsletter published by Stevens, Foster Financial Advisors.