Asset titling is a misunderstood but important part of estate planning. It is easy to believe that the so-called experts like banks, investment companies and escrow companies automatically place property into the “proper” name, but that is not always the case. What is “proper” may or may not be good for your particular situation.
The question is: Who owns the property? If a name is added to an existing bank account, you are not simply adding a name, but you are gifting property to the other person (for instance, if you add your child’s name to the account). If so, your child may now access the funds. However, those funds may also now be levied upon by your child’s creditors.
Here is a brief summary of some of the most common methods of holding property in California, and some of the main advantages and disadvantages of each. This list is a rough guide and is not comprehensive:
Sole ownership. You have sole title to the property. It is yours and no one else’s.
- Advantages: The title is completely in your name, and there is no co-owner to worry about. There is no co-owner to take your money.
- Disadvantages: Unless there is a beneficiary designation, assets in your own name may need to pass through your probate estate after your death. However, if the total relevant assets of the deceased are less than $150,000, California’s small estate procedure may apply — avoiding a full blown probate proceeding.
(California does not yet allow transferring real property through a beneficiary transfer. However, that may change: There is legislation pending before the California legislature which would authorize a “transfer on death” deed.)
Joint Tenancy with Right of Survivorship. This is a form of joint ownership. Assets are jointly owned, with each joint tenant having a property interest which survives the other tenants. Upon the death of one of the owners, ownership transfers to the other joint owner(s) by operation of law. If there are only two joint owners, the property is fully owned by the survivor.
- Advantages: This is a “probate alternative” at death, with the property automatically transferring to the other owner(s). “Joint tenancy” owners do not need to be related to each other.
- Disadvantages: If real property is involved, you might still have to hire an attorney to take the deceased joint tenant off of title. Also, as indicated before, a joint tenancy account allows the other joint tenants access to account funds. Your joint tenant’s creditors may now be able to reach the account even though it is all “your” money!
Community Property with Right of Survivorship. This method of ownership is like joint tenancy with right of survivorship, but is only available between spouses and domestic partners.
- Advantages: Like joint tenancy, the transfer of property is automatic upon the first death. There are also some tax advantages to ownership held as community property as compared to property held in joint tenancy.
- Disadvantages: The disadvantages are very similar to property held in joint tenancy. This is also worth mentioning: Transferring separate property into community property after marriage is, in effect, a gift to your spouse. Once you do this your spouse arguably owns half of the account, asset, etc. So if you divorce, you may have the unhappy surprise of handing over half of that asset.
Revocable Trust. This is a very flexible method of ownership, but make sure that the property is in the name of the trust. Many people have trusts, but sometimes their property – including real estate – is never transferred into the trust. This defeats the purpose of having a trust.
- Advantages: The property is “owned” by the trust, and the trust’s terms control the distribution. If the trust is revocable, the settlor(s) (i.e., creator(s) of the trust) may make changes in the trust without revising the title of the account.
- Disadvantages: There are few disadvantages. However, the integrity and diligence of the trustee is supremely important. You should never appoint an untrustworthy person as your trustee.
Finally, periodically review your bank and other accounts to make sure that they are properly titled, and to make sure that your beneficiary designations are current.