Beyond The Will, Client Compass

Retitling your assets to conform with your desired plan is essential to successful estate planning. Whether this means changing ownership of an asset altogether, adding a joint owner, or changing a beneficiary designation, the ownership of your assets at your death will make or break the effectiveness of your estate plan. This article will discuss the different types of ownership and their implications regarding your estate plan.

Probate vs. Non-Probate Property

When someone passes away, the first step of the estate administration process is determining whether the estate needs to be probated with the court. This determination often turns on how the decedent (the person who died) owned the property. “Probate” is the process of changing ownership of the decedent’s assets to the beneficiaries named in their Will, if any, or their beneficiaries as determined by the law.

This process controls all the “probate” property in the decedent’s estate. Probate property is any property the decedent owned in their individual name at the time of their death. All other property is classified as “non-probate” property. Non-probate property can include property held jointly, in trust, or with a beneficiary designation.

For example, no probate would be required if someone passes away with a house and bank accounts titled jointly with their spouse or held in a revocable trust. The property will automatically pass to the surviving owner or under the terms of the trust.

A common goal in estate planning is probate avoidance. It is a lengthy and sometimes expensive process. It can take months, or even years, depending on the size of the estate. Changing the ownership of your assets to the options discussed below can help avoid probate altogether, especially when paired with the proper estate plan.

Property held in a Revocable Trust

Revocable trusts are common tools used in estate plans. Titling assets in a revocable trust during your lifetime, also called “funding” your trust, will avoid probate upon your death. Avoiding probate allows the assets to be distributed more quickly to the beneficiaries. It also keeps the overall process more private, as probate requires the Will to become a part of the public record.

Revocable Trusts are considered separate legal entities. The Trustee manages property titled to a revocable trust. However, the Trustee has no legal ownership right in the property. They only control the assets for the benefit of someone else (the beneficiaries of the trust). Trustees are also held to care and loyalty duties, which require that they manage the trust property efficiently and effectively.

Transferring property to a trust must be done with careful attention to detail and only when a proper estate plan is in place. It also requires a review every few years, along with the rest of your estate plan because assets can change often.

Joint Ownership

Joint ownership is arguably the strongest form of ownership two individuals can have. Upon the death of one owner, the surviving owner automatically takes sole ownership of the asset. There is no formal process required to update the ownership. In most instances, it can be accomplished by presenting the death certificate to the proper institution.

Owning accounts, property, or other assets jointly is common in most people’s lives. After marriage, spouses will add each other as joint owners, and often own their homes together. Owning assets jointly makes it easier for the surviving spouse to manage the property after their spouse’s death.

Joint ownership is useful in other relationships, not just for those legally married. Before same-sex marriage was legally recognized, it was common for members of the LGBTQ+ community to own assets jointly with their partners. It is still used today for unmarried couples who cohabitate and share finances.

Elderly individuals, especially those who live alone, often add their children as joint owners of their accounts for assistance in paying the bills and managing their assets. When making this decision, they may not necessarily want the account to pass to that child at their death, but they add them as a joint owner for their convenience. Therefore, most people in this situation will include an “accounts for convenience” clause in their Wills. This provision provides that any accounts owned jointly at their death was “for convenience only” so that the funds will pass according to the terms of their Will rather than by joint ownership.

Beneficiary Designations

It is common for certain assets, such as life insurance policies and retirement accounts, to have beneficiary designations. The named primary beneficiary (or beneficiaries) will take the proceeds of the insurance policy or retirement account upon your death. Some institutions also allow you to name a contingent beneficiary (or beneficiaries) to receive the funds if your primary beneficiary predeceases you.

Any asset that passes by beneficiary designation to a named beneficiary is considered a non-probate asset. However, suppose you pass away owning a life insurance policy or retirement account that requires a beneficiary, and you fail to name one. In that case, the funds will be considered a probate asset. The default beneficiary will be your estate, and the proceeds will pass under your Will, if any, and otherwise as determined by the law. Therefore, it is very important to keep the beneficiary designations on these policies and accounts updated.

You can also designate a “transfer on death” beneficiary for assets that do not typically have beneficiary designations. For example, any bank accounts held in your name alone can have a “transfer on death” beneficiary, preventing that asset from becoming a probate asset upon your death. People often name their revocable trusts as the “transfer on death” beneficiary to ensure the asset will avoid probate altogether.

Everyone, no matter what their financial situation is, needs an estate plan. The proper estate plan can bring peace of mind that your assets will pass to your loved ones properly and effectively upon your death. Analyzing how your assets are titled during your lifetime and sometimes making changes to the ownership of those assets is a quintessential part of effective estate planning.