BERLIN – Naming beneficiaries is a key part of estate planning that many people overlook. Your last will and testament designates who will receive your assets upon your death; however, it does not always control the legal transfer of wealth. If you title an asset in one person’s name and leave it to another person in your will, the title takes precedence.
"How assets are titled can determine whether or not your estate plan does what you want it to do," says Joan Bozek, First Vice President, Merrill Lynch Bank & Trust Co., FSB. "The details matter."
According to Bozek, you should title your assets in ways that are consistent with your estate plan. In addition to real estate, keep beneficiary information up-to-date for stocks, bonds, collectibles and business interests. Life-altering events such as marriage or divorce, the birth of a child or the death of a family member are especially important occasions to revisit how your assets are titled.
Proper titling is important in all families with multiple children. It can be even more critical if you are in a second marriage and have children from a previous marriage, or if there is a significant age difference between you and your spouse.
One possibility would be to re-title the property as tenants in common. In that case, a portion (the percentage of which is determined by the account holders) of the property’s value would be disposed of according to the wife’s will. Bozek says an even better option would be for the wife to place the house in a revocable trust (also known as a living trust) before remarrying.
"Upon the wife’s death, the revocable trust becomes irrevocable and its terms could expressly state that the house be held and available for use by the husband, but at his death, it would pass to the children. A trust guarantees that a third party is making sure that the wishes of the trust’s creator are achieved," notes Bozek. As the name implies, revocable trusts can be altered or dissolved at any time before the creator’s death or incapacity.
Living trusts also can be useful in avoiding probate, a time-consuming and potentially expensive process that could involve multiple jurisdictions.
One solution is to hold the property in joint tenancy with rights of survivorship, but only if the owner is sure who the property should pass to if he or she dies first. Another way is to place the property in a revocable trust, which would allow it to avoid probate and pass quickly to heirs according to the terms of the trust document.
For residents of community property states, assets acquired by you and your spouse during your marriage are subject to specific rules that may differ based on which community property state you reside in. But proper asset titling is still critical because it could blunt the negative impact of estate taxes.
Bozek recommends caution in making pay-on-death or transfer-on-death designations, which are similar to naming beneficiaries for life insurance contracts or IRA accounts. Meant to expedite the transfer of assets upon death, they take legal precedence over the individual’s will and can upset a carefully crafted estate plan.
The bottom line is that asset titling should be the foundation of any estate plan. "Improper asset titling is easy to overlook, but can lead to some unfortunate surprises down the road," Bozek says. "By working with your attorney and a Financial Advisor, you can make sure your estate plan works as you intend."