Understanding How to Hold Title of Assets: Choose Wisely!
When you purchase your first home or open a taxable account, you might be asked, “How would you like to hold title to this?” For many, this question can be confusing, and it’s not surprising—there are several ways to hold title, each with its own implications. Choosing the right title is crucial because it affects access, control, and who inherits the asset. As the saying goes, “the devil is in the details,” and this is especially true when it comes to asset titling. Here’s a closer look at the most common ways to hold title and how they impact ownership and inheritance.
Sole Ownership is the simplest form of asset titling, usually favored by single individuals or married people who want the asset in just one name. It offers complete control to a single owner, but it also comes with drawbacks. Assets held this way are included in the owner’s taxable estate, making them subject to probate and potential creditor claims. However, adding a Transfer on Death (TOD) designation can help avoid probate by allowing the owner to name a beneficiary who will inherit the asset directly upon the owner’s passing. It’s important to remember that beneficiaries under TOD have no control or access to the asset while the owner is alive.
Joint Tenants with Rights of Survivorship (JTWROS) is a popular choice for married couples, but it’s also available to anyone wishing to co-own an asset equally. This form of ownership ensures that each co-owner has an equal stake. For instance, a married couple would share 50/50 ownership of an asset. The most significant benefit of JTWROS is that if one owner passes away, their share automatically transfers to the surviving owner, avoiding probate. This seamless transition makes it a favorable option for those seeking simplicity and automatic inheritance.
Joint Tenants in Common offers more flexibility than JTWROS, making it a preferred choice for non-married individuals, though it can be used by married couples as well. It allows co-owners to divide their interests unequally, such as a 70/30 split. However, the decease downer's share doesn’t automatically transfer to the surviving owner; instead, it passes through their estate. This means that heirs must manage the transfer, which can be more complicated. Additionally, a co-owner’s share might be exposed to the other partner’s creditors, adding another layer of risk.
Community Property with Rights of Survivorship is an option available only in community property states like Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington, and Wisconsin. This type of titling is exclusive to married couples and requires equal ownership of the asset. Upon the death of one spouse, their share automatically passes to the surviving spouse without going through probate, simplifying the transfer process. However, it is limited to the states that recognize community property laws.
Lastly, a Living Trust offers the most comprehensive protection for distributing assets according to the owner's wishes upon their death. This legal arrangement outlines the owner’s specific intentions and provides a clear path for how assets should be handled. It’s particularly valuable in preventing disputes among heirs and ensuring that assets are distributed efficiently. While it requires some effort to establish and maintain, the benefits often outweigh the initial complexities, making it the most robust choice forestate planning.
Making an informed decision about how to hold title is essential, as it can significantly impact your financial future and the inheritance process for your loved ones. Taking the time to align your titling choice with your financial goals and estate planning needs can help prevent unintended consequences and ensure a smoother transfer of assets.
LPL Tracking Number: 650488
