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Estate Planning Basics

What’s in a Title?

Last month, I discussed the legal documents necessary for a solid estate plan. This time, the focus is on the equally, if not more important side of the coin: making sure one’s financial assets are titled properly.

The inherent need for this was impressed upon me one day during my years as a banker, when an 83-year-old man visited the branch. He had come in with his wife’s death certificate, and he needed to get money out of his wife’s savings account to pay for some of her final expenses. Sounds like a simple and logical request, right? Well, when I looked at the account profile on the computer, I saw that her account was titled individually, only
in her name.

I felt horrible when this man, who had just lost his wife of fifty-nine years, had to be told that he couldn’t get to his deceased wife’s money until he had the proper papers from the probate of her estate. The money in the account was obviously his at this point due to the rights of survivorship for spouses, but because of a technicality, the bank could not legally give him that money. This was a poignant example of the importance of making sure all your financial accounts are properly titled.

How should the account have been titled? The account should have been titled either jointly or at the very least, with a POD (payable on death) designation, so if the account owner dies, whatever is in that account goes directly (avoiding probate) to either the joint owner or the person designated as the POD.

Here are some general tips about how to title different assets and some pitfalls to avoid:

Real estate

There are two ways to make sure your house avoids probate: Either give it away while you’re still living; or have a living trust distribute it after your death. I tend to opt for the trust route for two reasons. First, if you give away the house without retaining lifetime rights to live there, you have no legal protection if that someone you gave the house to decides to sell it. Secondly, if that someone ever has to sell the house, he/she could owe capital gains taxes all the way back to the price that you paid for it. That could be a huge tax bill depending on how long you lived there.

Bank accounts/taxable investment accounts 

Again I like using the living trust as the owner of these types of accounts. If you have a trust, don’t pay attention to the rest of this point. If you don’t have a trust, then I would use a POA/POD combination on these accounts. The power of attorney will make sure that someone else can write checks and pay bills if you can’t. The POD designation makes sure that the money in the account goes directly to the person you want when you’re gone, without having to go through probate. If you have a joint account and one account owner dies, then the surviving account owner will still have access to the money immediately. For married couples, joint accounts are fine. For others (children and friends), I don’t recommend it.

Qualified accounts/IRA/401K/annuity/life insurance 

All of these accounts should already have beneficiary designations from when you set them up. So no trust/POA/POD is required.

Keeping these tips in mind when setting up financial accounts will help save a great deal of time and money for your family.

Jeremy D. Shipp, CLU, RICP, has worked in the financial services industry since 2006. He is managing partner of the retirement and estate planning firm, O’Dell, Winkfield, Roseman & Shipp, LLC. This material does not constitute legal or tax advice, or individual investment advice; you are urged to speak with your appropriate professionals before making any decisions.
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