How property is titled plays a significant role in estate planning. In this article we’ll take a 5,000 foot view of the ways in which we hold title to our property, and the effect such title has during periods of disability or at death.
First, when we speak of title, we speak of legal ownership of a piece of property. Sometimes title is reflected in a written document, such as a deed to a house, a title document for a vehicle, or a signature card for a bank account. Other times there may not be a legal document associated with the property (think clothes or furniture). In estate planning, we look at four types of ownership:
Property that is held in an individual’s name is the most basic form of ownership. There is but one owner, the individual. If the individual becomes incapacitated, his individually owned property can be managed via a court order (whereby the court appoints a guardian to manage the property) or through the use of a power of attorney (where the power of attorney identifies an agent to act on the individual’s behalf). On the individual’s death, his individually owned property is transferred to his beneficiaries through the court process known as probate, per the instructions in his will or per the laws of intestate succession if he died without a will.
Joint property is property that is owned by two or more individuals. There are three forms of joint ownership: tenancy in common, tenancy by the entirety (TBE), and joint tenant with rights of survivorship (JTWROS).
From an estate planning point of view, an individual’s property interest in a tenants in common ownership are the same as property that is individually owned, i.e. the property can be managed via court order or power of attorney in the event of disability, and the property is transferred at death through the probate process.
Property that is TBE or JTWROS is handled during disability the same as tenancy in common property. However, TBE and JTWROS property automatically transfers to the surviving owner(s) at death. In other words TBE and JTWROS property avoids probate.
Property that is held with a contract designation comes in many forms, examples include: life insurance, IRAs, annuities, and accounts that are transferrable upon death. Like individually owned property, if the property owner becomes incapacitated, contract designation property can be managed via a court order or through the use of a power of attorney. When the owner dies, the property is transferred in accordance with the contract designation to its intended beneficiaries.
Property in Trust is owned by the Trustee in her role as the fiduciary for the trust. In other words, the Trustee is charged with managing the asset in accordance with the directions of the Trust. In the case of a revocable living trust, the individual (or Grantor) who established the trust is typically also the Trustee of the Trust as well as the beneficiary of the Trust. In this way, while the Grantor is alive and well, any property held in trust is managed by the Grantor as Trustee, for the benefit of the Grantor as beneficiary. On the Grantor’s disability, her successor Trustee takes over, managing the assets in the Trust for the benefit of the Grantor/beneficiary. On the death of the Grantor, the successor Trustee transfers the property in Trust in accordance with the Trust instructions. Therefore, property in trust avoids guardianship and does not require a power of attorney in the case of disability, and likewise avoids probate at death.
What is hopefully clear from this article is that estate planning is more than simply drafting a will. Ensuring proper title is of significant importance in planning for disability and ease of estate administration at death. Contact a Ralegih Estate Planning attorney today to assist with your estate planning – 919-825-1518.