The next time you open a new account or purchase a home, take a moment to contemplate how you want to title the asset, as the choice you make may produce significant impacts or unforeseen consequences in the future. Asset titling is one of the many critical estate planning strategies that can offer protection from creditors, avoid probate proceedings, and ensure investments are passed to their intended beneficiaries.
Properly coordinating the title of your assets to your estate planning goals supplies the necessary framework to avoid disappointment, frustration, and confusion during some of the hardest moments of life.
There are several ways an asset can be titled. The most common are as follows:
Tenants in Common: Under this type of asset ownership, each party owns a dividable share. For example, if there were three names on a property, each owner would own 1/3 of the asset. If an owner dies, their interest could be subject to a probate process. If a bank account were held as tenants in common, any other owner could touch all of the funds in the account, but the account cannot be closed without all the owners agreeing. Additionally, the portion of the account owned by each individual could be reached to satisfy such individual=s judgment creditors. When an asset title is silent and the owners are not married to each other, tenants in common is presumed.
Joint Tenants with Right of Survivorship: Under this type of asset ownership, each party owns their share while they are alive, but their share goes to the surviving owner(s) upon their death. This process happens without any probate administration. With this type of ownership, the last owner to die receives the entire asset. Of course, during the lifetimes of the owners, they could all agree to sell or distribute the asset.
Tenants by the Entireties (reserved for married couples only): A married couple may own assets under this type of ownership, which is commonly referred to as TBE. TBE means that each spouse owns an undividable interest in the entire asset. This type of ownership offers excellent creditor protection from the creditors of any one spouse. Upon the death of one spouse, the surviving spouse receives the entire asset without any probate procedure. Either spouse can access the account at any time. When an asset is owned by a married couple in Florida, this type of ownership is presumed, even if the asset does not specifically say TBE.
Life Estate and Remainder Interests: This type of asset ownership is usually reserved for real property. Under this arrangement, some person or persons have the right to occupy or use the property during their respective lifetime(s). For example, this could mean receiving rental payments from tenants or the right to reside on the property. Upon the death of the life tenant(s), the asset transfers to the remainder beneficiary(ies), after the life tenant=s death certificate is recorded. This transaction happens without any probate procedure. The process is normally established with a deed to the property. A ladybird deed, which is a very popular planning tool, makes this type of transfer fully revocable by the creator of the interest, at any time during the creator=s lifetime. Additionally, creditors of the beneficiaries cannot act upon the remainder beneficiary=s interest until the beneficiaries take ownership of the asset.
In Trust For (ITF), Payable On Death (POD), and Transfer On Death (TOD): These three different types of transfers are all basically the same, but the name will be determined by your financial institution. Most banks and brokerage houses use the TOD designation, but your bank or financial institution may use any of the three, as they all have the same effect. Adding these designations to an account means that the asset will pass automatically to the named beneficiary upon the death of the account owner. These types of accounts are great for avoiding probate, but offer no assistance in the event of incapacity, as the beneficiaries have no rights to access the asset until the death of the original owner(s).
Named Beneficiaries (i.e. Life Insurance and Retirement Accounts): Many accounts allow you to list beneficiaries. When this is an option, it is wise to take advantage of it. Much like the TOD, POD, and ITF accounts listed above, these types of titles allow a listed beneficiary(ies) to receive an asset upon proof that the owner has passed away. This is normally done by presenting an original death certificate (not a photocopy). The owner can divide the asset among a group of beneficiaries, and he or she may even add contingent or secondary beneficiaries to the account, who would receive only in the event that the primary beneficiary is deceased. These beneficiary designations can be changed easily and at no cost to the owner. Many companies now allow these changes to be made electronically.
If you have any questions or concerns about how to title an asset, especially with real estate, it is always wise to seek guidance from a competent attorney. It is equally important to revisit the way you title your assets after major life events, such as births, deaths, marriages, and divorces, to ensure proper protections are in place for your current stage of life.