Assets Must Be Properly Titled In Order For Estate Plan To Work As Intended

(Forbes) -- Even if one’s financial life is fairly uncomplicated, everyone should have a last will and testament.  

But when leaving the attorney’s office with this important document there is more work to be done. 

Assets must be properly titled so that upon death assets are distributed as intended.

Perhaps with the exception of the choice of potential guardians for children, the most important function of a will is to assure the transfer of assets to beneficiaries in the manner and the timing of one’s wishes.  

But many are not aware that very often not all assets are disposed of by a will, but directly pass to beneficiaries regardless of the intentions stated in the will. 

This is especially true of real estate and financial accounts that transfer in accordance with how they are titled or by designated beneficiaries.

 The will only control the disposition of assets that fall within one’s probated estate.

The most obvious example of when a designated beneficiary controls the disposition of a financial asset is life insurance. 

When purchasing insurance the designation of a beneficiary(s) is front and center. 

Unless the owner of the policy designates his or her own estate as the beneficiary, the death benefit will not be controlled by the will. 

Other examples are retirement accounts such as a 401(k), IRA, etc. 

Typically, one will designate a beneficiary for these accounts as part of the application process. 

Similarly, brokerage and bank accounts also allow the owner to designate direct beneficiaries.  In all cases, when there is a named beneficiary, assets will be distributed accordingly, which may be contrary to the intentions stated in a will.

Real estate ownership – how it is titled – also controls its disposition.  When property, say a residence, is jointly owned, how it is titled determines if the decedent’s interest in the property passes to the surviving partner, becomes part of the decedent’s estate, or passes to a third party. 

Titling of jointly owned property can be especially tricky in community property states.

A related point concerns revocable trusts.  

A revocable trust is an inter vivos or living trust, meaning that it is established during the grantor’s life, as part of an estate plan. 

They can be useful to ensure privacy, avoid the costs and delays associated with the probate process, and provide for continuity of asset management. 

A critical element of the planning, often overlooked, is that the grantor must transfer (retitle) assets to the trust.  Also, not often considered in light of recent tax law, titling of assets may impact estate taxes. 

For married couples, an unused Federal estate tax credit can be carried over to the surviving spouse.   Many states do not have similar rules, making the titling of assets between spouses an important tax planning opportunity.

Wills are an extremely important part of estate planning.  For confidence that your estate plan fulfills your intentions, speak with your attorney or planner on the proper titling of your assets.


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