If you completed your estate planning documents, congratulations! You’ve taken an important first step. The next step is to title accounts or designate beneficiaries in a way that supports the established estate plan, not undermines it. The verb “title” refers to how something is named and translates to the legal form of asset ownership. Failing to do this can cause an unintended transfer of assets, possibly leading to increased taxes, MaineCare issues, frustration, and even lawsuits among heirs. Titling affects real estate in addition to financial accounts, vehicles, and more.
Accounts owned by you individually with no beneficiary designations will pass per the terms of the will or trust. However, contracts (such as life insurance, annuities or retirement accounts) pass directly to third parties through the beneficiary designation they have on file. The beneficiary designation trumps whatever your will say, so make it is accurate. (If you need to make a change, contact the company to get the proper form to complete and return to them.) Other accounts may pass outside of your will or trust because they have a Payable on Death (POD) or Transfer on Death (TOD) designation, or because you set up joint ownership (intentionally or out of convenience).
Here are the most common types of titles and their legal impact:
Individual accounts. One person or entity owns this type of account. Assets that are titled in one name alone will pass according to the terms of the will or trust. Assets from an individual account will be added to the total estate and will be subject to probate.
Joint Tenants with rights of survivorship (JTWROS). This type of account will pass directly to the surviving account holder when the first account holder dies regardless of what the first person’s will says. Spouses often hold bank accounts in JTWROS form. If their wills specify that each of them will give their entire estate to the surviving spouse at death then the JTWROS account presents no problem because the account title mirrors the will’s terms. In fact, it is often desirable to hold an account in JTWROS form between spouses because the surviving spouse will have access to the funds in the account immediately at the death of the first spouse rather than having to wait several months for a will to be probated.
Tenants in common (TIC). While all of the account holders are alive, the account is owned by the holders in proportion to the amount they contributed to the account. When one dies, the interest will pass to whomever has been specified in the will or trust rather than to the surviving account holder(s).
Payable on death (POD) / Transfer on death (TOD). This is a designation added to an individually titled account. By specifying a specific beneficiary, the assets will automatically be transferred to the designated beneficiary(ies) on the account holder’s death without going through probate. This titling will supersede any instructions in the will. Unlike a JTWROS account, the beneficiary(ies) will not have access to the account until after the death of the owner. This designation allows one to specify both multiple beneficiaries and the percentage of assets each will receive. If the TOD beneficiary dies before the account holder, their share is eliminated and is divided among the surviving TOD beneficiaries. There is generally no contingency planning with this method.
A joint account set up for convenience. Sometimes people open accounts and name a joint owner for convenience. For example, they might add one of their children because it is convenient for bill paying. An issue arises when the goal was to have an adult child pay bills and monitor the account, but not for the child to inherit the entire account at death. Some states have a special type of account that allows for this; Maine does not. If you have a child on the account as a joint owner, he or she will own the account when you pass.
LLC, FLP, Inc. If a legal entity was created, like an LLC, a family limited partnership, or a corporation, and assets are titled in the name of the entity, then the agreement or bylaws or entity rules will dictate what happens after death.
Anytime your life or circumstances change dramatically, your asset titling and estate planning should be reviewed and, if necessary, updated. Asset titling and beneficiary designations can have income and estate tax implications as well which should be discussed with your estate planning attorney and should be carefully coordinated with your overall estate plan to achieve optimal results. Even if you think you know how your assets are titled, it is wise to review your titling periodically: things change or mistakes can be made.
The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless we agree in writing after a personal consultation. Please contact us for a consultation on your particular situation.