Titling assets is a key aspect of estate planning.
Titling on documents is a lot like labeling.
Parents label lunchboxes, clothing, and other items to remind them and others of the ownership of each item.
Essentially, titling assets serves to legally label such assets with then identity of their owner.
According to a recent FedWeek article titled “How Assets Are Titled Can Make a Big Difference,” property can be titled in a variety of ways.
Each of these ways affects estate planning a little differently.
As such, titling assets can have intended or unintended consequences on your taxes, inheritances, and even the disposition of these assets during a divorce.
What are the common ways of titling assets and how might they impact the financial future for you and your loved ones?
Titling Assets in Your Own Name
You can have property and assets only under your name alone.
This is probably the simplest form of asset ownership.
Many people are not married when they have their first job.
Bank accounts and other property are solely owned by them.
If you keep your assets titled separately, you will need additional estate planning to allow someone to access these assets if you become incapacitated.
Titling assets to a single individual will also mean the property will be distributed through probate when the person dies.
Joint Tenants with Right of Survivorship
Titling assets using this method means the property is co-owned between two or more persons.
When one of the owners dies or becomes incapacitated, the other owner or owners can still access, use, and own the funds.
Probate is avoided until such time as there is no longer a living owner.
Tenants in Common
There is a divided interest in the property with tenants in common.
Titling assets in this way means none of the owners has a claim to a specific part of the property.
If one of the owners dies, then the last will and testament of this owner will determine who the successor owner or owners are of such share.
The surviving owners do not automatically inherit the share of the joint owner who died.
Tenancy by the Entirety
Titling assets in this way allows a married couple to function as a single legal entity in ownership.
In short, each spouse owns the asset 100%.
The ownership cannot be separated from the joint ownership entity.
As such, the creditor of one spouse may not seek payment from the sale of the property.
A creditor can only make a claim on the property if the debt belongs to the couple.
Not all states provide for tenancy by the entirety.
Close to home, Missouri does, but Kansas does not.
The property is titled to a “legal entity” with this type of ownership.
These entities could be a corporation, limited liability company (LLC), trust, or partnership.
With an entity holding the property, there are tax and creditor protections and benefits.
Not all states recognize community property.
As of right now, only California, Washington, Idaho, Nevada, Arizona, New Mexico, Texas, Louisiana, and Wisconsin are community property states.
One the best aspects of community property is the full step up in basis upon the death of the first spouse to die.
In separate property states, like Kansas and Missouri, only one-half of jointly owned property enjoys the step up.
When titling assets, you should work with an experienced estate planning attorney to ensure the align with the goals of your comprehensive estate plan.
Reference: FedWeek (July 27, 2022) “How Assets Are Titled Can Make a Big Difference”