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Understanding How Your Assets Are Titled Will Impact Your Estate Planning

Milton D. Jernigan II

An important element of any estate planning is understanding how the titling of different assets within your estate will affect your estate planning options with respect to the control and disposition of those assets and the estate tax issues associated with those assets.  Different types of asset titling will result in those assets being ultimately treated differently in your estate and this will impact your estate planning options with respect to those assets.

Generally speaking, assets which pass under your Will are your “Probate Assets,” otherwise also  known as your “Probate Estate.”  Assets passing outside of you Will are your “Non-Probate Assets,” otherwise  also known as your “Non-Probate Estate.”  Assets which are subject to either Federal or State Estate Taxes or both are known as your “Taxable Assets,” otherwise also known as your “Taxable Estate.”
 
Probate Estate, Non-Probate Estate and Taxable Estate are three different, sometimes overlapping concepts which are determined by asset titling. In general, all of your Probate Assets and most or at least part of your  Non-Probate Assets will be included in your Taxable Estate calculations (subject to your applicable Federal or State Estate Tax Exemptions).
 
Broadly speaking, for most estate planning clients, asset titles fall into the following general categories:   

  1. Assets in your own name alone; 
  2. Assets which are held in Revocable Trust; 
  3. Assets jointly owned with a spouse or co-owner with right of survivorship (JTWROS or Tenants by the Entireties);
  4. Assets jointly owned with a spouse or co-owner or partners with no right of survivorship (Tenants in Common, Partnerships, LLCs and so on);   
  5. Assets owned in a bank or investment account with a designated beneficiary (Paid on Death or Transfer on Death accounts);  
  6. Assets owned in an IRA, 401(k) or other retirement plan with named beneficiaries; and
  7. Assets owned in a life insurance policy with named beneficiaries.
                           

Assets in Your Own Name (Categories 1 and 4 above):  These assets do pass under the terms of your Will and are part of your Probate Estate.  You determine by the terms of your Will who gets these assets and when they get them.

Assets Held in a Revocable Living Trust (Category 2 above):  These assets do not pass under your Will or through your Probate Estate, rather they are passed on based on the instructions in the Revocable Living Trust itself.
 
Assets Jointly Owned with a Spouse or Co-owner (Category 3 above):  With respect to the first spouse or co-owner to pass away, assets which are jointly titled with a right of survivorship do not pass under your Will or through your Probate and are therefore not part of your Probate Estate.  The Will of the first spouse or co-owner to pass away does not control the disposition of these kinds of assets, rather they pass directly by operation of law to the surviving spouse or joint owner regardless of what your Will says.
 
Assets with Named Beneficiaries (Categories 5, 6 and 7 above):  These assets pass directly to the named beneficiary and therefore do not pass under your Will or through your Probate Estate.  Your Will does not control the disposition of these kinds of assets, rather, they pass directly to the named beneficiary regardless of what your Will says.
 
Two things that are often surprising to many estate planning clients are first:  the fact that many assets are not controlled by your Last Will and Testament (particularly with respect to the first spouse or co-owner to pass away) and are therefore not part of your Probate Estate, and second:  the fact that whether or not assets pass through your Will and your Probate Estate, those assets or at least part of those assets are still count toward your Taxable Estate for both Federal and State Estate Tax calculations (subject to your applicable Federal or State Estate Tax Exemptions).


McNamee Hosea has an experienced team of estate planning and estate administration partners, associates and paralegals who can assist you with an analysis of the titling of your assets and how best to plan your estate plan and possible estate tax exposure(s), including, if advisable, possible retitling of some of your assets to better suit your planning and/or tax needs.

Contact Mr. Jernigan or one of our other estate planning attorneys for assistance.