Two of the most basic and frequently overlooked items on every estate planning checklist are beneficiary designations and the proper titling of accounts. Often, people will let beneficiary designations and asset titling determine their estate plan for them, which may produce a result that is contrary to their intentions. Regardless of what well-drafted wills and trusts instruct, beneficiary designations and the titling of assets will control the ultimate distribution of the property.
The titling of your accounts indicates the current ownership of the asset, but can also include the future ownership of the same asset. The most common forms of ownership are discussed below:
Individual name or sole ownership: At death, non-retirement accounts that were titled only in the name of the individual become part of the probate estate. The will then determines who receives the proceeds of the account.
Joint ownership- Common forms of titling for joint accounts include Joint with Rights of Survivorship (JTWROS) and Tenants in Common (TIC). JTWROS means that all of the asset automatically passes to the survivor if one of the account owners dies. The surviving account owner receives proceeds irrespective of any provisions set out in a will or revocable living trust. Probate is delayed until the death of the second account owner. JTWROS is most common with spouses. Conversely, TIC allows each “tenant” or owner to have a distinct, defined interest in the asset (typically 50/50 for spouses). Upon the death of one owner, the decedent’s proportionate interest in the property transfers to their respective estate and is distributed accordingly.
POD/TOD- Payable on Death (POD) applies to bank accounts and Transfer on Death (TOD) applies to brokerage accounts, but both designations seek to accomplish the same objective. The purpose is to add one or more beneficiaries to non-retirement accounts in the event of death. POD and TOD designations allow accounts to bypass the probate process and pass to heirs by beneficiary designation instead.
While account titles are critical in the planning process, it is equally important to review beneficiary designations. IRA, 401(k), other retirement plans, annuities, and life insurance policies allow you to define a beneficiary for the asset and avoid probate. Beneficiary instructions that show “According to Will” or “Estate” will unfortunately result in subjecting the assets to the probate process.
Proper titling of your assets and proper funding of trusts benefit from the expertise and collaboration of an experienced estate planning attorney, tax advisor, and CERTIFIED FINANCIAL PLANNER™ practitioner. Effective legal documents and periodic reviews are crucial to creating a successful estate plan that will transfer your wealth to your loved ones according to your wishes. Need a referral to an estate planning professional? We’re happy to provide guidance to the right expert for your particular needs.