(Originally published July 3, 2019)
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When making a large purchase people do not generally give much thought to how that asset is titled. They will most likely default to owning it in their own individual name, or if they are a couple, in both of their names. What if I told you that how you title your assets has a huge impact on your life and legacy planning, and that you can avoid a few costly mistakes just by properly titling your assets.
If you title an asset in only your name and die without doing some other planning, your family could end up in conflict and in court trying to sort through your wishes for that property. Here are some ways you could title your assets and keep your family out of court and conflict:
Designate beneficiary/beneficiaries. If it is a house, you can put a transfer on death instruction on the deed and upon your death, the house would be transferred to your beneficiary/beneficiaries. This could get tricky if there is more than one beneficiary because they may not agree on what to do with the asset. One beneficiary may want to sell the asset while the other wants keep it in the family. A better option if you do not want the beneficiaries to fight or if you do not want them to get the asset outright for one reason or another is to title the asset in the name of a trust.
Title asset in name of trust. Most assets can be titled in the name of a trust. A trust is an agreement between the Creator/Grantor, the Trustee, and the Beneficiary. The Creator/Grantor is the person who establishes the trust. The Trustee is the person who manages the assets in the trust. The Beneficiary is the person who the trust is set up to benefit. Generally, while a person is living, they will act in all three capacities. A trust can be revocable, giving you the right as the Creator to change it at any time, or irrevocable, which means it is a lot more difficult to make changes. A revocable trust is created and funded during your lifetime and you can use it to hold title to your assets. When assets are placed into an irrevocable trust, they are literally removed from the person’s taxable estate. This is why it is more difficult to make changes to an irrevocable trust. Both revocable and irrevocable trusts can be used tactically to protect assets, plan around possible tax issues, and pass wealth down to the next generation.
Title asset in more than one name. If you want the asset to go directly to your spouse or other person named as a joint owner of the asset, you can simply put their name(s) in the title of the asset as a Joint Owner with Rights of Survivorship. Anytime you see the language “with Rights of Survivorship,” it generally means that the asset will pass to the survivor outside of the probate court upon the death of the joint owner. This works well with couples. Some elderly people who have not done a lot of planning will also add their children to their accounts as joint owners to ensure a smooth transition for their children.
As you make your large purchases remember to consider how you are titling those assets and do what works best for you and your family. You want to choose the path that costs you the least unnecessary money, protects your family wealth, and keeps your family out of court and out of conflict.