How and Why to Properly Title Assets
Effective asset management isn’t just about personal financial gain, it’s also about ensuring your estate plan provides the maximum benefit to your heirs. Properly titling your assets is a critical step to achieving that goal—one that many people overlook.
Let's find out why titling is such an essential component of your estate plan.
Benefits of Proper Asset Titling
There are several ways to title your assets and some fundamental reasons why you should regardless of how you go about it:
Probate is the process by which your assets are distributed after your death. If you leave clear instructions, they will be followed. If you don’t, by foregoing a will or proper titling, the court will rely on state law to decide how your assets get distributed. Attorneys are involved, at your estate’s expense, and it may put your family members in a position to fight over your estate or lose control of how the estate is settled.
The stress, length, and cost of probate are enough to give anyone a migraine. Properly titling your assets can prevent your assets from passing through probate, and save a lot of trouble for your family. Remember, your family is already dealing with your passing and a lengthy and contested probate will just add to their stress.
Delegate management and/or oversight of property
There may come a time when you or your family lose interest in the management of family property, or management becomes too burdensome. Proper titling can allow a corporate fiduciary to help with those needs.
Planning for family succession and access
You want your loved ones to have access to the property and eventually have ownership of it. Proper titling removes the guesswork, which streamlines and expedites the process.
Titles for Property
There are different titles for certain assets. Let’s start with property.
Tenancy-in-common is a title that designates multiple owners. The distinguishing feature of property titled in this way is that there is no survivorship. Meaning, if one owner dies, the others don’t take over the deceased’s interest in the property. Each owner can pass their interest to heirs, even when the other owners are still alive.
Joint Tenancy With Right of Survivorship
This is a form of titling that usually involves a married couple, but it can also involve multiple unmarried owners.
This form of ownership assumes each owner has an equal interest in the property regardless of how much each owner actually contributed to the purchase. All parties are equal and have equal rights to control the property.
Joint tenants with right of survivorship differs from tenants-in-common in that the remaining owners do take over a deceased owner's interest in a property. The interest does not pass through an estate plan until the last party passes away.
This is very similar to Joint Tenancy with Right of Survivorship except that it is only available to married couples. Each spouse can pass their one-half interest with a will, but in the absence of a will, the marital property automatically passes to the surviving spouse.
Transfer on Death (TOD) Deed
In South Dakota, you may convey your property using a Transfer on Death Deed to a beneficiary. If properly executed, this form of transfer will pass outside of probate as well. This is a form of transfer is fully revocable during the life of the grantor and does not need to be disclosed to the beneficiary until death.
Titles for Investments and Assets
Your assets can also have unique title designations that go beyond simply naming beneficiaries. The most common are Transfer on Death (TOD), and Payable on Death (POD).
While quite similar, TOD applies to investment accounts and real estate and POD applies to bank accounts. Both methods transfer an asset to a named beneficiary upon the death of the owner.
The beneficiary is identified on a form provided by the bank or a beneficiary designation recorded with the register of deeds office. The beneficiary has no ownership rights during the property owner's lifetime, but when the owner dies, the asset is transferred to the named beneficiary without passing through probate.
These designations supersede what you have decided to do in your will or trust. If the will says to leave the assets to John, but Jane is the named beneficiary in a TOD or POD titling, the assets will pass to Jane.
Because of this rule, you should exercise caution before employing them. Ineffectively using TODs and PODs can result in any number of issues when you pass away including,
- Your beneficiaries receive less than you intended.
- Your estate does not have enough funds for taxes and expenses.
- Any property passes to unintended individuals
These designations are often as simple as checking a box—but as you can start to see, the consequences are anything but straightforward.
Periodically review your designations to ensure it’s all up-to-date. Your assets should go to the people you intend.
Titles for Trusts
Trusts are an integral part of many people’s estate plans, but have you thought about how to title them?
A revocable living trust is a structure that you, as the grantor, may title some or all of your assets in to remove from your personal estate while still retaining control.
By placing assets in a revocable trust you can protect them from the probate process and name a trustee to handle the administration of the assets in the trust according to your instructions when you pass.
The trust becomes the owner of all assets you title in it, but the key element of a revocable trust is you still control the administration of those assets. Until you become incapacitated or pass away you can change the agreement, take the assets back, or contribute more to it.
First Dakota Wealth & Trust Can Help
At First Dakota Wealth & Trust, we are passionate about your financial plan. It’s important to us that your estate plan is reflective of your wishes—and asset titling is a significant part of that conversation.
Ready to take your estate planning to the next level? Set up a call with our team today.
First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity, and after death. We help clients develop a financial roadmap to help simplify their financial future.
Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department, or its employees provides tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.