How to make sure that your assets end up where you want them after your death

Tom Kotick, Associate Director in Tax, SS&G

You may think that because you have a will, all of your assets will go where you intended. But if those assets aren’t properly titled, it doesn’t matter what your will says, because the title on the assets supersedes a will and other legal documents, says Tom Kotick, CPA, CFP®, associate director in tax at SS&G.

“Say, for example, an account is joint tenancy with rights of survivorship,” says Kotick. “Then, by law, after your death, the asset will go to the other joint owner, even if you’ve indicated in your will that you want that money to go to your child. The law looks at how that asset is titled, and that governs where it goes.”

Smart Business spoke with Kotick about how to make sure that your assets end up where you intended.

Where do people err with titling assets?

People often get tripped up with life-changing events, for example, when they get married or divorced, if there is a death, or the birth of a child. The biggest areas of risk are assets that pass via beneficiary designation, typically IRAs, 401(k)s, life insurance and annuity products. Those are considered contractual agreements with those companies, and when you set them up, you designate a beneficiary.

A single individual may name his or her parents as the beneficiary, but not update the beneficiary after getting married. As a result, the provider will pass that money on to the designated beneficiary, even if your will or trust says otherwise. Any time you experience a life-changing event, you should do an overall review of your estate planning, and a key component of that is asset titling.

In addition, you should pay close attention to asset titling as you set up new accounts or acquire additional assets, or if there is a sizable shift in your net worth. What may have made sense when you had half-a-million dollars may not make sense if you now have $2 million.

What would you say to those who say they trust their family to make sure assets go to their intended recipients?

That sounds good in theory, but the only way to guarantee those assets transfer to the intended beneficiary is to make sure they are correctly titled. A parent may feel that all the children get along just fine, but there could be rifts.

Also, money and finances can be a very uncomfortable discussion for families, so if you can properly title your assets and your family doesn’t need to have those tough discussions, everyone is better off.

In addition, if you, as a parent, make one person the beneficiary of assets with the idea that the child will distribute them according to your will, you create another problem. If that child inherits an asset and gives it to someone else, he or she has now made a gift for gift tax purposes. Generally speaking, every person can give every other person up to $13,000 annually. This year and in 2012, there is a $5 million gift tax exclusion individuals can use to gift assets. But to the extent your child does so, he or she is eating into the $5 million gift exclusion and would have less exemption to pass assets to that child’s own heirs tax free.

Is there any way to get around it after the fact if assets haven’t been properly titled?

One way is with a qualified disclaimer. For example, if you have an account titled ‘transfer on death’ to your brother and you pass away, the account legally goes to him. But if he doesn’t want it, or doesn’t need it, and he wants it to go to your heirs, he can execute a qualified disclaimer, essentially saying ‘thanks, but no thanks,’ and that asset will pass as if he predeceased you. The asset becomes part of the estate and transfers based on your will. The risk of planning with disclaimers is that one, the individual has to agree to not accept the property; two, there is a timeline for executing the disclaimer; and three, the individual disclaiming the property must not have received any benefit from that property, for example, withdrawing funds from the account.

How can having assets properly titled speed up the process and keep matters private?

Having assets properly titled speeds up the process as it will minimize the need for any post-death planning by your advisers and can help avoid the probate process. Any assets passing by way of your will are subject to probate, which is a very public process and can take time. If assets pass through the county probate court, the details become public record anyone can access.

On the other hand, with asset titling tools including ‘payable on death’ and ‘transfer on death,’ assets transfer directly and avoid the probate process, keeping the transfer private and avoiding the expense inherent to the probate process.

How can outside experts help ensure that you get it right?

Working with an outside expert can help you determine if your plan is still appropriate given any tax law changes. Also, having that periodic review forces you to consider your family situation. Have family dynamics changed? Is the plan in place still a good plan? Without reviewing the plan every so often, it’s easy to overlook those things.

Finally, as you are titling your assets, if you are also creating a will or a trust, work with an attorney to make sure everything is titled correctly and that assets really will transfer the way that you want them to.

Tom Kotick, CPA, CFP®, is an associate director in tax at SS&G. Reach him at (330) 668-9696 or [email protected]