Last week, a question came up about how a client should title an account. Account titling can be extremely important for estate planning purposes. What struck me as we were discussing it was all of the different types of account titling possible. It can be completely overwhelming. This week, I’ll run through many of the common types of account titling. Remember, before you decide how you want an account titled, you should always run it by your advisor, CPA, or estate planning attorney to make sure the titling you want matches your overall plan. The reason for this is that the titling of the assets can affect who controls the asset, who owns it, who receives it upon your death, whether it avoids probate, and what the potential tax consequences are. The answer to these questions should drive most of your titling decisions.
- Individual Account- Just what it says, it’s yours and yours alone. It’s a part of your estate upon death. It’s also the simplest structure.
- Joint Tenants with Right of Survivorship (JTWROS). The with right of survivorship part is sort of redundant because that’s the definition of joint tenants. This is when 2 or more people have equal ownership. When one owner dies, the remainder automatically passes to the other owners. This structure avoids probate and is commonly used between spouses or family members.
- Tenants by the Entirety. This, like Joint Tenants, is more common among spouses but only available in certain states. This titling may provide creditor protection and again is available based on state law.
- Tenants in Common (TIC). This is similar to joint tenants, but each owner controls where the assets go upon death. They do not automatically pass to the other owner. TIC accounts can also have unequal ownership. This is more common among business partners in real estate property or investment arrangements.
- Community Property. In the United States, there are nine community property states, where most assets and debts acquired during marriage are generally considered to be owned 50/50 by both spouses, regardless of whose name is on the account or title. People talk about this often, but it is only available in these states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Other states allow you to elect community property typically via a trust, and those are Alaska, Florida, Kentucky, South Dakota, and Tennessee.
- Payable on Death (POD) or Transfer on Death (TOD). Typically applies to bank accounts. These allow assets to bypass probate upon death. There are numerous issues with these types of accounts, which I’ve written about previously, so make sure you seek counsel before adding this account titling.
- Uniform Gift (or Transfer) to Minors or UGMA or UTMA. These are designed for minor children. These are managed for a child but held in the name and tax ID of the child. Upon the age of majority (age 18 or 21 depending on the state), the funds are wholly in the child’s control.
As you can see, there are a multitude of titling options, and which one is right for you can depend largely on your personal situation. As mentioned, always seek advice from counsel before making titling elections or changes.
Frequently Asked Questions About Account Titling
1. Why does account titling matter in estate planning?
How you title your accounts can determine who owns and controls the assets, who receives them upon your death, whether they avoid probate, and what tax consequences may apply. Your account titling should align with your overall estate plan.
2. What are Payable on Death (POD) and Transfer on Death (TOD) designations?
POD and TOD designations allow assets to pass directly to named beneficiaries without going through probate. While these designations can simplify asset transfers, they may create unintended consequences if they are not coordinated with your broader estate plan.
3. Should I consult a professional before changing account titles or beneficiaries?