Today, trusts are used in the estate planning process for many individuals to fully protect their financial assets. Trusts can protect against many common lifetime threats including lawsuits, creditor problems, failed business ventures, bankruptcy, divorce, disability/special needs and long-term care/nursing home stays – among others.
During estate planning meetings that include the development of trusts, clients often ask about the ownership of assets. Understanding the titling of assets is key to developing a successful estate plan that ensures the proper distribution of your estate.
Simply stated, titling is the ownership and beneficiary designation of your assets and importantly, it controls who gets your assets when you die. Deciding how you hold title to an asset is extremely important because of the consequences that may develop when assets are improperly titled, such as:
- An unintended person inheriting your assets
- Assets going into probate
- Your estate being subjected to unnecessary taxes, among others.
In the estate planning process, titling is also referred to as “funding” your estate plan. An integral, yet separate, phase of estate planning, clients are led through the funding process which includes a thorough review of ownership of all assets including real estate, bank accounts, investments and business interests, as well as the beneficiary designations on life insurance, IRAs, 401Ks, annuities and other retirement accounts. The intent behind this exercise is to ensure that the titling is consistent for each asset and that assets pass to the intended individuals in the most tax-efficient manner. Additionally, the titling of certain assets such as the primary residence should be reviewed to ensure maximum asset protection benefits.
The funding process can be surprisingly revealing for clients. For example, some have discovered that an ex-spouse or deceased relative is still named as a beneficiary of a life insurance policy or a retirement account, or that only one child is listed as joint owner of their bank accounts. The funding process provides an opportunity to identify and to correct titling and beneficiary flaws that could otherwise defeat the intent of your estate plan.
It is vital that the titling of your assets integrates with your estate plan. When you reach this critical part of the estate planning process, be sure to follow through and give the funding process the attention it deserves.
In closing, it is also wise to consider your estate plan a living breathing thing; when your situation changes be sure contact your attorney to update your plan accordingly. Click here for more information on funding your trusts.