Understanding the Implications of How You Hold Title to Your Assets
Asset titling helps ensure that your property and investments are passed down to their intended heirs.
What is asset titling?
Asset titling defines the way in which you own an asset, and each state has specific laws that may affect your ownership and should be considered in your planning. Generally, the most common methods of title holding are:
- Sole Ownership or Fee Simple. Ownership by one individual, business entity, or Trust. The sole owner has full control over the retention, sale, disposition, or gifting of the asset during their lifetime. Upon death, the asset will be considered part of the individual’s estate, with or without a Will, or according to the terms of the entity’s governing document. Estate probate can become complicated and expensive if not done properly, therefore this ownership title should be considered carefully in your planning.
- Revocable/Irrevocable Trusts. If you have a Trust plan, you may be advised to retitle some or all of your assets into the name of the trust for administration purposes. Upon doing so, your Trust becomes the owner of the assets and the trustees of your Trust then have legal rights to manage, hold, and administer the assets in accordance with the terms of the Trust. Assets held in the name of a Trust are not subject to probate on death
- Payable on Death Designation (POD). The asset is titled in your name and passes to the beneficiaries named in the POD designation and does not go through probate.
- Joint Tenancy with Rights of Survivorship. (JTWRS) Two or more people hold title to an asset jointly in equal shares. If one partner dies, their rights of ownership will automatically pass to the surviving tenant(s) in equal shares and will not be considered a probate asset until the sole surviving owner’s death, at which time the asset will be treated as Sole Ownership.
- Tenancy by Entirety. This method refers to a form of shared property ownership that is reserved only for married couples. A Tenancy by the Entirety permits spouses to jointly own property as a single legal entity. This means that each spouse has an equal and undivided interest in the property. This form of legal ownership creates a right of survivorship; so, if one spouse dies, the surviving spouse automatically receives full title to the property.
- Community Property. Under community property, each spouse owns everything equally. Nine states have community property laws: California, Arizona, Nevada, Louisiana, Idaho, New Mexico, Washington, Texas, and Wisconsin. Each spouse receives an equal division of real estate, passing according to each individual’s separate estate plan.
- Tenants in Common. Two or more people hold title to an asset jointly, with equal or unequal percentages of ownership. Unlike Joint Tenancy, Tenants in Common hold title individually for their respective portion of the property and upon each tenant’s death, their portion of ownership will be treated as if they were a Sole Owner. This is not always ideal as co-tenants will be subject to each other’s estate planning by Will, Trust, or if none, according to their state’s probate code. This leaves no control as to whom the surviving tenants will own property with, which should be considered carefully in succession planning.