Asset titling: How to title your assets for estate planning
Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
- The way assets are titled can influence or even determine who controls them, the tax consequences, whether they’re subject to creditors’ claims and who will receive them once you pass away.
- With a POD or TOD account, you can name a beneficiary who will inherit the account when you pass away without the account having to go through probate.
- Opening a new account is often a good time to make sure your asset titling reflects your overall plan and that your overall plan reflects your wishes.
Asset titling can help ensure that your property and investments are passed down the way you intend. Mistakes in titling can lead to unintended consequences, such as assets going to the wrong person, an avoidable probate process or unexpected taxes.
What is asset titling?
Asset titling refers to the way in which you own an asset, such as in your individual name, jointly with someone else, or in a trust or entity. The way in which assets are titled can influence – or even determine – who controls them, how they’re taxed, whether they’re subject to creditors’ claims and who will receive them once you pass away. That’s why titling is a critical part of estate planning. It is important to consult with legal and tax professionals to understand these implications.
Even the best estate plans can be undone if the assets are not titled correctly, and sometimes titling to optimize one goal can work against another. Understand your titling options to help ensure they are consistent with your goals.
Individual name
Taking ownership of anything in your own name – whether it’s a bank or brokerage account, a home, a business or another asset – is straightforward. You have complete control. The downside, however, is that assets that you own individually are fully subject to the claims of any of your creditors. In addition, assets in your name will typically be included in your estate for estate tax purposes when you pass away. If no beneficiary is named specifically on the account or asset, assets you own in your individual name generally pass according to the terms of your will (or state law, if you don’t have one), and may have to go through a court-supervised process known as probate.
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Pay-on-death (POD) and transfer-on-death (TOD) accounts
While the name isn’t pretty, a POD account is fairly common. Most often, it’s a bank account. A TOD account is, in most cases, a brokerage account.
These accounts work exactly like an individual account during your lifetime; you have complete control and assets are subject to your creditors’ claims. However, you can name a beneficiary who will inherit the account when you pass away, without the account having to go through probate.
When you pass away, the named beneficiary generally must provide a death certificate, proof of identity and any other documentation required by the financial institution. The beneficiary designation (not your will) controls the disposition of the account. For this reason, the beneficiary can take ownership without waiting for probate.
In some cases, parents prefer to have separate TOD or POD accounts for each child, which can lead to unequal inheritances if the accounts – which may have begun with roughly equal values – end up with very different values when the parent dies. In general, we believe it is a better practice to name all your intended beneficiaries on each account, in whatever proportions you choose.
If you list multiple beneficiaries on an account, some states presume that all named beneficiaries receive equal shares. If you want to treat your named beneficiaries unequally, you may need to specify percentages (or, in some cases, use separate accounts). If the account allows it, also name a contingent beneficiary in case your primary beneficiary dies before you.
Joint ownership
When two or more people own an asset together (for example, a married couple who co-own a home), there are several ways to title it.
Tenants in common
Owning an asset as “tenants in common” allows you to manage the asset jointly with the other owners, whether it is a checking account, brokerage account or some other asset – but each owner has a specified ownership interest in the asset (often in equal shares, unless stated otherwise). Joint owners can override that default and specify their percentage ownership when they create the account, but if later on they change the percentage each of them owns, that change could be treated as a gift and may need to be reported for gift tax purposes.
When one joint owner passes away, their portion of the asset doesn’t automatically pass to the surviving owner. The deceased owner’s portion passes through their estate, according to their will (or state law, if there’s no will), in the same way as any other individual asset. In addition, each owner’s share is fully subject to the claims of that owner’s creditors.
Joint tenancy with right of survivorship
In a “right of survivorship” title, each joint owner typically has access to the entire account while both are living. But when an owner of a survivorship account dies, the surviving owner automatically becomes the owner of the entire account without the need for probate. Like assets held as tenants in common, assets held with rights of survivorship are subject to the claims of the joint owners’ creditors.
Tenancy by the entirety
In some states, this titling option is available for accounts or assets owned by spouses. Tenancy by the entirety works like joint tenancy with right of survivorship but also provides a basic form of asset protection against a spouse’s creditors. The creditors of one spouse generally cannot seize entirety property, nor can they force a partition and sale of property held in this way. Note that this creditor protection is not perfect – when the non-debtor spouse dies, the debtor spouse automatically becomes the sole owner of the entire asset, which would then be subject to creditors’ claims.
Tenancy by the entirety is not an option in all states, so check with your lawyer. Some institutions have separate paperwork for these accounts.
Trust or entity
If your planning includes a trust or an entity such as an LLC or S corporation, work with your tax and legal advisors and a J.P. Morgan professional to help ensure that your assets are titled the way they should be. Ideally, assets you want to own in a trust or entity should be titled in the name of that trust or entity from the beginning.
Make sure account titles are consistent with your plan
Opening a new account is often a good time to review and confirm that the plan you have in place still meets your objectives. Questions about account titling frequently raise other questions about your broader plan. For example, if you have a revocable trust, should a new account be opened in the name of the trust or in your individual name? If you have a joint account with a child or a parent, would a trust, or maybe a POD or TOD account, be a better option?
In addition, if you and your spouse own all of your property as joint tenants with right of survivorship or in tenancy by the entirety, it may be more difficult to take advantage of certain estate planning techniques, such as a bypass (or credit shelter) trust under a will or a revocable trust. Some of these techniques require each spouse to have assets in their own name that will pass through the estate via a will or revocable trust.
Make sure your asset titling reflects your overall plan and that your overall plan reflects your wishes. You should consult with your tax and legal professionals before making any decisions about titling so you understand the impact. A J.P. Morgan professional can help you and your team.
Frequently asked questions about asset titling
Yes, bank accounts can be included in a revocable trust if they are retitled in the name of the trust. The major benefit of titling an account in the name of the trust is the ability to bypass probate.
A trust bank account is simply a bank account held by a trust and managed by a trustee.
Yes, the money in a checking account is an asset and is generally part of the owner’s taxable estate.
This largely depends on how the account is titled:
- Accounts held as joint tenants with right of survivorship generally become the property of the surviving owner(s) upon an owner’s death. Other forms of ownership, including community property and tenancy by the entirety, may be subject to different rules depending on applicable state law.
- Accounts that have a “pay-on-death” beneficiary (sometimes known as “Totten trust” accounts) will become the property of the listed beneficiary or beneficiaries. Beneficiary designations generally take precedence over a will, so it is important to regularly review and update these designations to ensure they align with your estate planning goals.
- Accounts that are held as tenants in common specify a percentage share for each owner. If an owner passes away, their share will pass to people or entities specified in the deceased owner’s will.
- Accounts held entirely in one person’s name with no beneficiary will pass to the people or entities specified in the deceased owner’s will.
- If an account has no beneficiary and the deceased owner didn’t leave a will, the account will generally go through probate, and the laws of the state where the owner lived – which typically favor a spouse, children or other next of kin – determine who inherits it and how much.
In addition to bank accounts, other assets like life insurance, annuities and certain retirement accounts like IRAs and 401(k)s pass to the named beneficiaries. Assets owned in trust will pass based on the instructions in the trust.
If no one claims the money in an account, it can eventually pass to the state of the owner’s last known address. The state holds it for a period of time as “unclaimed property.” If you’re an heir, you can usually claim it by searching for “unclaimed property” in your state or in the state where your relative lived.
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