How to title your assets
Asset titling can have significant implications for your estate plan and for asset protection.
Often times, the best estate plans can be undone if you do not title assets correctly. It is important to understand the implications of the different ways to take title to assets, so that you coordinate your asset titling with your overall estate plan.
Taking ownership of anything in your own name—whether it’s a bank or brokerage account, a home, a business, or anything—is very easy. You have complete control. The downside of that, however, is that assets that you own individually are fully subject to the claims of any of your creditors. In addition, assets in your name are part of your taxable estate and will pass through your estate via your Will.
Pay on death or transfer on death
A pay-on-death account (most frequently a bank account) or transfer-on-death account (most frequently a brokerage account) works exactly like an individual account during your lifetime; assets are subject to your creditors’ claims. But, when you pass away, the account passes automatically to the named beneficiary with just a death certificate and proof of identity; the beneficiary designation (not your Will) controls the disposition of the account. For this reason, the named beneficiary does not need to wait for your Will to be probated in order to take ownership of the account.
Note that sometimes you are only allowed to have one beneficiary per account; if you want to name multiple beneficiaries, you may have to create multiple accounts, which can also lead to inequality among the beneficiaries. If you do list multiple beneficiaries on an account, some states (e.g., Florida) force you to treat all named beneficiaries equally; so, if you want to treat your named beneficiaries unequally, you may need multiple accounts. Make sure you’ve named a contingent beneficiary in case your primary beneficiary dies before you.
There are different kinds of joint ownership. Owning an asset as tenants-in-common allows you to manage the asset jointly—whether a checking account, brokerage account, or some other asset; but, each of the joint tenants is treated as owning his or her pro rata portion of the asset—which in most instances is one-half. When one joint owner dies, his or her portion of the asset passes through his or her probate estate (controlled by the Will) in the same way as any other asset would that is in the joint owner’s individual name—the deceased joint owner’s portion of the account doesn’t automatically pass to the surviving joint tenant. In addition, a tenant-in-common interest is fully subject to the claims of a joint owner’s creditors. Joint owners can change the percentage each of them owns, but there could be gift tax consequences to doing so.
Joint tenants with rights of survivorship/joint tenants by the entirety
When a joint tenant of a survivorship account dies, the surviving joint tenant automatically becomes the owner of the entire account; all that’s necessary is a death certificate. Each joint tenant has complete control of the entire account during his or her lifetime.
In some states, spouses have the option to take title to their joint account as tenants ‘by the entirety,” which can only be owned by two spouses, rather than as “joint tenants with rights of survivorship.” The only functional benefit of an entirety account is that the creditors of one spouse cannot force a partition and sale of property that is held in the account, so a tenancy by the entirety provides a basic form of asset protection against a spouse’s creditors. Whether you can hold bank or brokerage accounts as tenants by the entirety depends on state law; check with your lawyer to make sure that such an account is available in your state and that it makes sense with your overall estate plan. Some institutions have separate paperwork for these accounts, so if an entirety account makes sense for you, make sure you title your assets properly.
Entity or trust
Your comprehensive estate plan may include an entity (such as an LLC or S Corporation) or a trust. You should work with your tax advisors and your J.P. Morgan representative to ensure that your assets are titled where they should be— ideally, assets you want to own in an entity or trust should be titled in that entity or trust from the beginning.
Make sure account titles are consistent with your plan
When you are opening a new account, it is often a good time to review your planning to confirm that the plan you have in place still meets your objectives. Oftentimes, questions about account titling will raise other questions that implicate your broader plan—if, for example, you have a revocable trust, should a new account be opened in the name of the trust as opposed to your individual name? Should you have a joint account with your parent or child, or would a trust or POD/TOD account be a better fit?
In addition, if you and your spouse own all of your property as joint tenants with rights of survivorship or by the entirety, it may be more difficult to take advantage of certain estate planning techniques (such as a bypass trust, for state or Federal estate tax purposes) that require each of you to have assets in your individual name that will pass via your Will or revocable trust. You should always consult with your planning professionals before taking title to assets to make sure that the titling is consistent with your overall plan and does not jeopardize its efficacy.
Working with your other advisors, you and your J.P. Morgan representative can take steps to make sure that how you take title to your assets reflects your overall plan—and that your overall plan reflects your wishes.