We are often asked the important question “How should I title my/our personal investment or bank account” or “what is the correct way to title my/our house?” The answer in almost all cases is to make sure that you follow your estate plan when titling assets and accounts.
If you have a Will and/or Trust, these documents will govern the distribution of your assets upon your death as long as those assets are not in a “Survivorship Accounts.”
For example, if your Will establishes a Trust for your surviving spouse or other family members, only assets that pass under your Will can pass to those Trusts. Likewise, if your Will includes tax planning provisions, only assets that pass under your Will are available for tax planning purposes. Assets in Survivorship Accounts pass completely outside your Will or Trust at your death.
All of the following survivorship account designations, whether in a bank, brokerage firm or other financial institution or as a designation for the ownership of stock, land or other assets, can derail a good estate plan:
- Joint Tenancy with Right of Survivorship Account
- P.O.D. (Payable on Death) or T.O.D. (Transfer on Death)
- Trust Account where you hold something as “Trustee” for someone else (a beneficiary) or someone holds something as “Trustee” for you as the beneficiary.
- Community Property with Right of Survivorship.
- Joint tenants
If you have provided for a trust that utilizes estate tax or Medicaid planning (a bypass trust, A/B trust, unified credit trust, applicable credit amount or special needs trust) or if you plan on giving your property in equal shares to more than one person, a survivorship account designation will cause the account to be paid directly to the survivor and not to your Trust or as provided in your Will. Designations of this type do allow the account to avoid probate but can cause big issues with estate taxes and may create a gift tax liability. These account designations prevail over the terms of a written will, a trust and any prenuptial or postnuptial agreement.
For married persons, most individually owned Texas real property should be held in one or both spouses’ names but without any designation of rights of survivorship. Deeds should be prepared to correct any errors. Likewise, stock certificates and brokerage accounts should be retitled so that you are “tenants in common” or if you live in a community property state like Texas, “community property”. If an account is a spouse’s separate property, the account should only be in that spouse’s name with the words “separate property” after the name. Therefore, make certain that none of your bank or investment accounts or assets are registered in the form of “joint tenants with right of survivorship,”; “JRWROS,” “CPWROS,” POD”, “TOD” or as “Trustee” for another individual unless you have a specific reason for making the designation. A married couple’s joint community property account or asset should be titled “Community Property” (without rights of survivorship) if that form of registration is available. If the Community Property form of registration for an account or asset is not offered or if jointly owned property is not community property, the account may be registered as “Tenants in Common.” Another acceptable form of title for joint accounts is listing the owners’ names but avoiding any survivorship rights by stating “joint tenants without right of survivorship.”
Finally, adding someone as an owner on an account or asset for convenience purposes usually gives that person the right to withdraw all the funds or investments or to sell the asset! So be careful when adding someone to any account.
In closing, each client has his or her own unique situation. Please call us to discuss any questions you may have regarding your accounts with our firm.
The Strategic Wealth Planning Team
Notice: The above information is provided as a courtesy to Strategic Wealth Planning clients and is neither tax, legal nor estate planning advice. We are glad to discuss specific issues relating to your particular circumstances, so please give us a call at 214.727.6000.
 Many people have created trusts, limited liability companies or corporations to hold real and personal property as part of their estate plan. This blog only addresses property owned by individuals or a married couple.