Estate Planning with Asset Ownership By Jamie Dietz
Perhaps the single most important aspect of estate planning is assuring that assets are properly titled. The desire to avoid probate can be accomplished simply with the proper asset ownership structure, which in turn effectively operates as an individual’s disposition mechanism of his or her assets upon death. However, titling assets solely to avoid probate should be done with caution, as unintended consequences can occur. Upon an individual’s death, assets owned by the decedent can be characterized as “probate” or “non-probate”. Probate assets are transferred to the appropriate beneficiary pursuant to the decedent’s Last Will and Testament, or by the laws of intestate succession, administered through the Probate Court. Non-Probate assets on the other hand, will be distributed to particular or named beneficiaries outside of the probate process, based upon the title of the assets. An asset will be considered a probate asset if based on its title, it cannot be determined how it will be disposed of upon death. The common types of probate assets are those that are individually owned without any designation of beneficiary or joint ownership, and those that are held as “tenants in common” without survivorship language. Another possible form of a probate asset may be one in which a joint tenant or beneficiary is deceased and no other tenant or beneficiary is included in the title. Conversely, assets which include or identify another individual to receive title to the asset upon death of the primary or co-owner are non-probate assets. Typical forms of non-probate ownership include joint tenants with rights of survivorship (JTWROS), transfer on death (TOD) or payable on death (POD), beneficiary designated assets such as IRA’s, annuities, life insurance and 401(k) plans, and assets which are specifically transferred to a trust and owned by a trustee. An integral component of the estate planning process is inventorying all assets. The inventory should include the name of the financial institution, account number, current value, cost basis, ownership and beneficiary designations. All assets must be identified and ownership structure determined. One of the best times to review an estate plan and inventory assets is during the first few months of a calendar year while preparing income tax returns and receiving 1099’s and K-1’s. (Please visit our website www.fandrlaw.com to review the Implementing the Estate Plan article on the Law Facts page for a detailed list of 10 specific types of assets.) It is imperative that title to and ownership of assets comport with an individual’s intended distribution scheme. For example, an individual may provide for a charitable bequest in his or her Will, but if all assets are non-probate, then the intended charity will not receive the bequest. Additionally, a parent may title her assets with one of her children as JTWROS “for convenience” to assist with payment of bills, etc. Upon her death, the child is expected to divide the account equally among his or her siblings. Notwithstanding this “plan,” upon the death of the parent, the child is the absolute owner of the JTWROS account and may very well divide the asset, OR keep all of the funds for his or her own account. When titling assets to avoid probate, a very important distinction must be noted. With JTWROS, the account holders have a current “ownership” interest in the asset, and therefore have the ability to change, withdraw, encumber or otherwise dispose of this asset. However, with TOD or POD ownership, the identified beneficiary has NO ownership rights until the primary account owner passes away. It is also critical that individuals ensure that contingent beneficiaries are identified on all beneficiary designated assets, such as life insurance, IRA’s, annuities and 401(k) plans. Keep in mind that if the primary beneficiary predeceases the owner and no alternate beneficiary is listed, then the asset may require probate administration to ultimately pass to the beneficiaries. In conclusion, estate planning can be a relatively simple task. These days however, the predominant mechanism of distribution is not the Last Will and Testament of an individual, but rather asset ownership and title. Accordingly, please be sure to review title to all assets and contact your estate planning advisors to assure that the proper title and ownership structure is achieved. For more information, please contact Attorney James Dietz at jdietz@fandrlaw.com.
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