More Than Just a Title
I’m sure we can all agree that Estate Planning is important. I think we can also all agree that it’s time consuming and sometimes mentally fatiguing. For those reasons and many others, it’s important we don’t overlook something as simple as a title on our financial accounts and real property. Sometimes people don’t realize the impact a title has over how the account transfers at death.
In some circumstances, the account title can make the transfer to a joint holder automatic. This can be great if that’s your intent. If your intent is for those assets to become part of your estate and distributed to others through your will, then you have a problem. The opposite can be true, as well, with assets you intended to go directly to your joint owner now being subject to probate first. Either way is acceptable as long as it works for you and your beneficiaries.
Let’s review the basic types of ownership and how they affect the transfer of assets.
Individual ownership is the easiest and most basic ownership to set up. There’s only one owner involved during the opening of the account and only one person has authority over the account.
It is not, however, the easiest to distribute while settling an estate. Property titled in one name only often passes through probate and is distributed according to your will. However, if there isn’t a will, then it will be distributed to heirs as designated by state law.
Joint Tenancy with Rights of Survivorship
Joint tenancy with rights of survivorship is a very common way to title joint accounts with two or more owners. Each owner will own an undivided interest in the property. At the death of an owner, the property will automatically pass to the surviving owner(s). This ownership is not affected by your will or trust you have set up.
This type of ownership avoids probate when the property passes between joint owners only. With the last survivor, the ownership changes to individual ownership and then, as mentioned above, could be subject to probate. If the last survivor chooses to do so, they can add a new joint tenant to share the ownership.
Tenancy in Common
Tenancy in common is another form of joint ownership between two or more people who share an undivided interest in property. This type of joint ownership, though, does not automatically pass ownership from a deceased owner to the surviving owners.
The deceased owner’s share of the property passes through probate and is distributed according to the terms of their will.
Tenancy by the Entirety
Tenancy by the entirety looks at each spouse’s share of ownership as indivisible, like they are one legal entity. This prohibits either from being able to transfer their share of ownership without the other’s consent. It also prohibits an individual spouse’s creditor from attaching a claim against property held by the entirety. This type of ownership also has rights of survivorship so at the death of one spouse, the survivor is entitled to full ownership without going through probate.
This type of joint tenancy, however, does have some restrictions. The first, it’s only available for joint owners that are husband and wife. The second, this type of ownership is recognized by less than half of the states. Some of the states that do recognize this type of ownership only allow it to be used to for real estate. Washington does not recognize tenancy by the entirety for any type of ownership.
Community property is another type of ownership that is only applicable to married couples, more specifically, married couples in nine states. Those states include Washington, California, Idaho, Nevada, Arizona, New Mexico, Texas, Louisiana, and Wisconsin. This type of ownership looks at how and when property was acquired in deciding each spouse’s interest in that property.
Generally, if you acquired the property during your marriage, it is community property and each spouse owns one-half of it. If it was acquired before the marriage or was a gift or inheritance, it is considered separate property. At the death of one spouse, their half of the community property transfers to the surviving spouse, while the separate property is distributed according to their will or trust. If you have separate property in a community property state, it would be wise to consult your attorney to make sure you have it titled correctly so it transfers as you would like in the event of your death.
During the estate planning process, remember to discuss all of your property and financial accounts with your attorney and tax advisor. How the accounts are titled can either work with your estate planning goals or against them. It can make the transfer easy by being automatic or more complicated requiring probate. Will your assets transfer as you intended? A title is more than just a title.
Wells Fargo Advisors Financial Network and its affiliates do not provide legal or tax advice. Transactions requiring tax consideration should be reviewed carefully with your accountant or tax advisor. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.