Titling of Assets

You’re about to purchase a vacation home. A stock holding. A luxury car. How should it be titled? Does it really matter who owns it? The answer, in almost all cases, is yes.

How you hold title to an asset of any kind—a piece of property, a certificate of deposit or a stock portfolio—is an extremely important decision. What is right for your friends or a family member may not be right for you in your unique circumstance. There can be consequences when an asset is titled improperly.

Examples of unexpected costs and consequences include:

  • Your estate could be subjected to unnecessary taxes.
  • Assets that could have passed outside of probate could become subject to this public process, adding additional costs as well as delays in the settling of your estate.
  • Your family could incur capital gains taxes from the loss of a step-up in basis.

This is especially true for those with taxable estates that exceed the amount that can be exempt from federal estate tax. In addition to the estate tax impact, the most common unexpected consequence is the requirement that the assets must pass through the probate process, incurring additional costs and delays because they were not titled in the name of the person’s revocable living trust.

If you haven’t done so recently, ask your financial advisor to conduct an overall review of your assets and how each is titled.

There is another unexpected consequence: An unintended person could inherit your property. Many people, especially the elderly, will add their children or other family members to the title of assets. Typically, the objective is to provide these individuals with access to the accounts in case of emergency or to make sure that the asset will pass to the children after their death. In the process, they may be exposing the asset to their children’s creditors or causing part of the asset to be included in a divorce proceeding. In addition, they may be exposing themselves to gift taxes.

There are many ways to take title to an asset. The most common are:

  • Sole ownership in one’s individual name
  • Joint tenants
  • Tenancy by the entirety (this can only exist between spouses)
  • Tenancy in common
  • Trustee of a living trust
  • Payable or transfer on death (POD or TOD)

How can you know which provides the greatest protection for you and your family at any given time? If you haven’t done so recently, ask your financial advisor to conduct an overall review of your assets and how each is titled to be sure you have achieved the balance that’s best for you and your family. Then, prior to major purchases in the future, touch base with your advisor to determine how that additional asset should be titled.

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The most effective approach to financial planning is one that integrates all components—investments, insurance, savings for education, savings for retirement, credit needs, charitable giving, tax planning and estate planning—into a unified, coordinated strategy customized to your needs, priorities and preferences.

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