Why Asset Titling Is Critical in Estate Planning

BY: Deidre S. Waltz, CFP®, CIMA®
Vice President, Relationship Manager
(405) 608-8002

You have worked hard to build your wealth. Now it’s time to take care of your loved ones, and there’s no better way to do that than to have a well-designed, comprehensive estate plan in place. Estate planning can seem like a complex undertaking, but an experienced professional can simplify the process so you can protect your wealth and secure your legacy for future generations.

One of the most important, but often overlooked, elements of estate planning is how your assets are titled. I frequently remind clients that you may have well-drafted trust documents, with terms and provisions that accurately reflect your legacy and financial goals, but if your assets are not titled correctly, then your estate plan may not accomplish any of those objectives.

Assets titled in your individual name will be subject to probate upon your death. The terms of your will govern how those assets are administered and to whom they should be distributed. If you do not have a will, state law will determine your heirs and how your hard-earned wealth will be distributed.

Probate can be a lengthy and expensive process. To avoid probate, many clients create revocable trusts during their lifetime. What clients often fail to do, however, is fund their trusts by retitling their assets from their individual name to the name of their trust. If your trust is titled “John Doe Revocable Trust, John Doe Trustee,” your bank and investment accounts also need to be titled in the name of your trust to be considered assets of the trust.

Many married couples have assets titled for joint ownership. Holding assets jointly may seem like a simple, effective way to title and manage accounts, but many clients do not realize that when they die, those assets go to the survivor. Any assets you own jointly will not be funded into your revocable trust if you are the first owner to pass. That is something to consider if your estate plans and trusts are designed to minimize estate taxes. If your assets do not flow into your trust, then your estate may not be as tax efficient as you had hoped.

Property that is jointly owned as tenants in common are different from joint with survivorship rights. When one of the owners of the property titled as “jointly owned as tenants in common” dies, his or her share will be governed by his/her will and therefore subject to probate. Probate can be avoided if the joint owner titles his/her share in the name of the trust.

Many working couples have significant funds held in their 401(k)s or individual retirement accounts (IRAs). When the IRA owner dies, the designated beneficiary inherits the IRA. If the IRA represents the majority of their taxable estate, then their trust may not be funded or at least not funded significantly, so their legacy and financial goals may not be achieved. IRA owners can name their trusts as the beneficiary, however there can be several adverse consequences to this designation.

With all the various ways to own and title property, it’s wise to ask your trust advisor to review your assets and how they are titled to ensure those assets will properly fund trusts and ultimately accomplish your goals.