Click below to listen to Episode 49 – What’s In A Name? Properly Titling Your Assets & Beneficiary Designations
What’s In A Name? Properly Titling Your Assets & Beneficiary Designations
This episode is a very educational, informative, and complicated topic on an extremely important subject – properly titling property and assets. We urge you to listen as it could mean the difference between chaos or an orderly process in the most extreme times of stress.
So, what’s in a name? Unfortunately, when assets aren’t titled correctly, property may not pass to the intended heirs. At death, property can pass in one of five ways:
- By Law
- By named Beneficiaries like in an IRA or 401k
- Under the direction of the deceased through a will which is administered through the courts by a process called Probate.
- Under the direction of the deceased through a trust ( a legal document) administered by a third party
- According to the laws of the state if there is no will (known as “Intestate”)
There are pros, cons, benefits, and consequences to how property is titled. Property refers to investment accounts, savings accounts, and/or real property such as a home, land, a ranch, vacation home, boat, etc. Listen to learn more about properly titling your assets and property.
HOSTED BY: Bob Barber, CWS®, CKA® and Mary Jo Lyons, CFP®, CKA®
Mentioned In This Episode
CIS Wealth Management Group
Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®
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Welcome to Christian Financial Perspectives, a weekly program where we talk about ways to integrate your faith with your finances. This is Bob Barber.
This is Mary Jo Lyons.
Are you ready to learn the truth about money from a biblical perspective?
Join us as we discuss what God’s Word says about money and integrating your faith with your finances… If it’s your first time listening, welcome to the program. If you’re a returning listener, welcome back.
Bob: Today’s podcast is going to be very educational and informative on a very complicated but extremely important topic. So, we urge you to listen as it could mean the difference between chaos or an orderly process in one of the most extreme times of stress. So what’s in a name? Let’s look at Numbers 27:3-11 in the Old Testament that tells a story of an inheritance of Zelophehad’s daughters and make sure I say that right again, Zelophehad. So here’s what Numbers 27:3-11 says, “‘Our father died in the wilderness. He was not among Korah’s followers who banded together against the Lord, but he died for his own sin and left no sons. Why should our father’s name disappear from his clan because he had no son? Give us property among our father’s relatives.’ So Moses bought their case before the Lord, and the Lord said to him, ‘What Zelophehad’s daughters are saying is right. You must certainly give them property as an inheritance among their father’s relatives and give their father’s inheritance to them. Say to the Israelites, if a man dies and leaves no son, give his inheritance to his daughter. If he has no daughter, give his inheritance to his brothers. If he has no brothers, give his inheritance to his father’s brothers. If his father has no brothers, give his inheritance to the nearest relative in his clan that he may possess it. This is to have the force of law for the Israelites as the Lord commanded Moses.'”
MJ: That is so interesting then how women and the laws have changed over time. I love the scripture. Thank you.
Bob: It is, and I figured out how to say Zelophehad. That’s a tongue twister. Say that one 10 times in a row fast.
MJ: But you know when it comes to your financial accounts, names are really important. Names mean things. How accounts are titled and how beneficiaries are listed is critical. The term titling refers to the legal form of asset ownership. So on today’s Christian financial perspectives, we’re going to be talking about understanding what these mean, why they are important, and what happens when they go wrong. Titling of accounts and beneficiary designations are two of the first steps in financial planning 101.
Bob: Yeah, today’s podcast is a really important topic, and it’s also complex. So, we’re going to do our best to simplify this and explain any terms that might not be familiar to you. We’re going to use some examples that hopefully will hit home for you, and if you have any questions, please as always, give us a call at 830-609-6986 during business hours or visit us on our website at ciswealth.com. The important thing to remember is to get help and ask those questions and seek the advice of an estate planning attorney as well as your financial advisor. So let’s look at this. At death, property passes in basically one of five ways – by law; by name beneficiaries like in an IRA or a 401k under the direction of the deceased; through a will, which is administered to the courts by process we call probate; under the direction of the deceased through a trust, which is another type of legal document administered by a third party; and/or according to the laws of the state if there’s no will, and this is known as intestate.
MJ: When assets are not titled correctly, property might not pass to the intended heirs. The form of ownership in which we take title to property can significantly affect the way the property is taxed, passed down to others at death, or divided in the event of a divorce. There are pros and cons, benefits and consequences to how property is titled. So by property, we’re referring to investment accounts, savings accounts, real property such as a home land, a ranch, maybe a vacation home, even a boat. You know, in my household I’ve always had this saying with my husband, his, hers, mine and ours. And we often joke, so what is mine is mine. What is his is mine and what is ours is mine. But you know, that’s all in good fun, but when it comes to titling of assets, it’s really not a joking matter.
Bob: That’s kind of Rachael’s philosophy too.
MJ: I figured as much. Us girls, we gotta stick together.
Bob: So let’s start with the titling of all your assets and accounts or account registrations. When two or more people own property, generally the options for title are Joint Tenancy with Right of Survivorship or Tenancy and Commons. And so if, you know, you go down to your bank and you open up a bank account, a joint account, this is the type of account it’s going to be. So keep in mind for the purposes of titling that “tenant”, that’s a term used to describe an owner, not a renter, which you can get mixed up him cause we’re used to hearing tenant. But in the case today, again, it’s a term used to describe an owner, which can be a little confusing.
MJ: Joint ownership can get really messy in the event of a divorce, a second marriage, children that come from multiple marriages, adoption, and blended families of all types. In today’s world, that is what we are dealing with more often than not. So, it’s important to understand the different types of ownership so you know that when a change may be needed in order to accomplish your goals and what you want to have happen with your property.
Bob: And as you say, that is so true today, especially because we’re living longer. So one spouse outlives another spouse and gets remarried, and they both have children. So that’s so important for everybody to keep that on their mind as we’re going through this.
MJ: Yeah, absolutely.
Bob: There’s Joint Tenancy with Rights of Survivorship or you might see the abbreviated and acronym is WROS. And that means when one of the joint tenants dies, the other owner takes control of the entire property. So you own it together. One dies, it’s easy, it goes to that person that’s living. The title states that two or more parties have simultaneous ownership. This is most commonly used between spouses or siblings like in a joint bank account. The deceased owner can pass none of it to anyone but the joint tenants, and spouses often agree that all or part of their community property will become the property of the surviving spouse upon the death of a spouse.
MJ: Usually that’s the case, but not always.
Bob: So this type of agreement must be in writing, signed by both parties, describing the community property subject to the agreement like banking accounts, investment accounts, etc, and include the appropriate language such as joint with right of survivor, which means it will become the property of the survivor or shall pass to the surviving spouse.
MJ: You know, Bob, if these statutory requirements are met, then the courts can’t intervene. So transfer of ownership in this case is not subject to the terms of the spouses will. Ownership reverts to the titling of the assets, and that’s the important thing you have to remember. So Joint Tenants with Rights of Survivorship is important because it eliminates the need for those assets to be probated through the courts. The information remains private. It’s not out there for public display. Ownership in this form dictates that all property interest goes automatically to the surviving spouse or co-tenant.
Bob: This is so important. As an example, when you buy a car or you buy anything like that, you want to buy it as a joint with right of survivorship. Otherwise, it’s going to have to go through probate and you don’t want to make life more complicated than it needs to be. So the next is Tenants in Common. That’s another form of ownership that’s commonly used for business partners. So, an example is when a partner dies, his or her share the business passes directly to his heirs as his will or living trust directs. Each party may freely sell, pass by will, lease, or otherwise transfer their interest in a business under a tenant in common as we’re speaking about. If a business partner dies without a will, the state determines how the business interest is distributed. In general, co ownership of a business, like in Texas where we are located, is presumed to be tenants in common unless specified otherwise.
MJ: So less common is Tenants by the Entirety. This is not recognized in Texas, but it’s one you may hear about as other states do use it. This can only be used by a married couple that owns property together. This titling only lasts as long as the couple is married. So under aTenants by the Entirety, ownership cannot be separated, which means creditors of an individual spouse may not attach and sell the property. Only creditors of the couple may make claims against the property. You know, there’s many things to consider when it comes to titling of assets and when it comes to the passing of property, it’s important that your intentions are carried out, but things can easily go wrong if the titling is wrong. So, that’s why we wanted to bring you today’s episode.
Bob: And if this is getting really complicated, we encourage you to keep listening, but we also encourage you to always feel free to pick up that phone and give Mary Jo or I a call during business hours at (830) 609-6986 to go over this with you because we really want to educate you about this very important topic. So, let’s go back to the Tenants and Common Registration or Title and some of the problems that it can pose in a business partnership. You have a business you own with two partners and suddenly one of you dies. That share is passed to his or her heirs per a will. So in this case, the surviving spouse, who may not have any knowledge, interest or desire in the business, they become a part owner in the business with the two other partners, and this can be very awkward and can put the whole business in an awkward situation, but this can all be avoided with proper planning.
MJ: So in Tenants in Common, ownership passes to the heirs of that owner. Whereas in this situation, if they had used their survivorship provision of a joint tenant with rights of survivorship in place with the business partners, it would have allowed the owners to automatically and immediately inherit another owner share if one of them should die. The property would pass outside of probate and by operation of law. Let’s look at another example. So let’s say you are one of four siblings and your only surviving parent is getting older; they need help with the bills. Mom decides she wants to add you to her bank accounts, investment accounts, checking accounts, et cetera, as a joint tenant rather than as an authorized signer. Well, mom passes away. Now, you own all of these assets. So you may be dancing in the streets, but your siblings have, for all intensive purposes, just been disinherited. So, is this really what mom wanted to happen? Oops, I’m thinking there might be some family drama happening. What do you think Bob?
Bob: It depends on who the favorite child is, right?
MJ: This is true. So, you can how just the little nuances between those two registrations and what a huge difference it can make in your estate planning.
Bob: I’ll tell you, Mary Jo it’s interesting as we go through this and does, I’m talking about this, you realize more and more on the importance of how all of this is titled.
Bob: So let’s take a look at another interesting solution like a married couple that are injured in the same car accident or common disaster. When assets are titled Joint With Rider Survivorship, the surviving spouse in this case must survive the deceased one but at least 120 hours or five days. Because if this doesn’t happen, the property is going to be divided and passed according to the will of each person. So again, this kinda comes back, Mary Jo, to possibly eight second marriage and how that could be affected with children from each one. Let’s take a look at the roll of the last will and testament. In the absence of a will in our state of Texas, the probate code is the fallback by default. So without a will in Texas, you’re setting yourself up for the state to decide who’s going to get your property, and there’s other states like this as well. When a real estate deed contains no survivorship language, a co owner can make their wishes plain by using a valid will to provide specific language for inheritance of the deceased interest.
MJ: With Joint Tenant Ownership, both spouses need to sign the deed to sell a home. However, if the home is titled as Tenants in Common, a spouse can sell his share of the property without the other spouse’s consent. Both parties have a separate indistinct interest in the home. And you know how some of these marriages start to fall apart and there’s friction? You know, I can just kind of see that happening in the case of a disharmony or divorce and that would not go as planned. And in situations where percentage ownership is desired, let’s take a look in a business again. Somebody has 60% ownership, but then there’s two other partners with 20% ownership each. So you have a 60%, 20%, and 20% ownerships between three different people. Then, joint tenants with rights of survivorship titling cannot be used in that situation.
Bob: So let’s look at that scenario, but older, widower, with children that has a lot of property and assets. If he remarries but once those assets to go to the original children, it is important to keep them isolated as separate property. Otherwise, they would go to the new spouse in the event of his death before his new spouse and potentially to her heirs if she lives longer. So, the assets should be listed out and itemized as part of his estate planning. If those assets are co mingled, as in a joint savings or checking account, it’s seen as if those assets were intended to be a gift and those assets may not pass to the original children as intended. It does not even have to be formal. Merely treating certain personal property as if you both own it could accomplish the same thing. If you both bring furniture and housewares into a marriage and use them interchangeably without distinction of ownership. Those items I have probably become community property.
MJ: If I sit in Mike’s big man recliner that he’s had since forever, then that means that we jointly own it as opposed to him owning it.
Bob: That’s correct.
Bob: I think of antiques in this situation, Mary Jo.
MJ: His recliner is an antique.
Bob: Well, I’m not going there. Poor Mike. We always talk about Mike. Please, we’ve got to get Mike on the program one day because we make fun of Mike, and you mess with Mike constantly, and Mike is your husband of all things. We don’t mess with Rachael that bad, I noticed, on my end. As I think about this, we’ve had some antiques in our family and you know, Mary Jo, our family goes back 185 years in Texas and we’ve had antiques for many, many years that have passed down from one generation to another. So, if anything should ever happen to Rachael, and I were to remarry after four or five years and then I were to die before the spouse I remarried, those antiques may not stay in the family line because they can become community property.
MJ: So in Texas you need very convincing evidence to overcome the presumption of community property. Now here’s an interesting what if scenario. You have a home. It’s in one spouse’s name, and that spouse dies. What happens to the home? Many assume the surviving spouse automatically gets the house, and it’s not always the case. The law varies by state, so it’s important to know your rights and know the state property laws. You want to trust, but verify. A very important American once said, “In the U S Property Law, legal ownership of real property, such as a house, is evidenced through the deed on that property depending on the state. If you are not listed on the deed of that property, you are not considered it’s legal owner, even if you’re paying the mortgage.” So, your participation in paying that mortgage doesn’t mean that you are going to actually have ownership unless your name is on that property. That’s true in certain states. However, in a community property state such as Texas, money earned by either spouse during marriage and all property bought with those earnings, including a home, are considered community property and deemed to be owned equally by the couple. So generally, this applies no matter whose name is on the deed. Likewise, debts of either spouse incurred during marriage are generally considered debts of the couple, and you’re both responsible for them. See, it definitely gets complicated.
Bob: Yes, it does, and I feel for people that don’t do this on a daily basis like you and I do, Mary Jo, because it’s so much to remember, and it’s so important that you seek the advice of a good qualified estate planning attorney and financial advisor to help you with this.
MJ: Not all of our clients are in Texas. We serve clients all across the country, and we know we have listeners all across the country. We’re talking a lot about Texas law, but you need to be familiar with the laws in your state.
Bob: You know, there are a few other things you should be aware of in dealing with property and the titling of assets. If you are not named on your home mortgage, the spouse whose name is on the mortgage can borrow against the equity without your consent or knowledge. And if you’re not on the title, your spouse who is on the title can sell property without your consent. Another Uh Oh, and the spouse who is on the title can give the property to someone else in the event of his or her death. So he or she could, for example, leave the home to the children instead of you.
MJ: Another question that this brings to mind, can you get a home loan without your spouse? And yes you can. You can purchase a home and be the only person financially obligated. Your name can be the only person on the loan. Here we go again. However, in the state of Texas, your spouse will still be required to sign the security instrument at closing because Texas is a community property state. So guys, you can run but you can’t hide.
Bob: So let’s look at that again – community property versus separate property. Typically property that is considered separate property in Texas includes property that was owned or claimed before a marriage. Certain types of property acquired during the marriage such as gifts and inheritance and even social security benefits is considered separate property unless it’s co mingled.
MJ: That’s true – an important point. So in a community property state like Texas, all debts incurred and assets accumulated by either spouse during the marriage are classified as joint property. Each person owns an undivided interest in the entire property. When one spouse dies, the survivor automatically receives the entire interest, avoiding the need for probate. Property titled as community property will not be controlled by a person’s will or trust. There is also a benefit from a capital gains tax perspective in that the entire property, not just the half belonging to the deceased spouse, will receive a step up in cost basis upon that death. That’s huge from a tax perspective. Community property states include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. These are all states that are mainly in the western United States, which is just kind of interesting.
Bob: I was hoping we were going to get to those states that were included in that, and I’m glad you said that. Again, that’s Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If a home is acquired during a marriage, the wife’s name doesn’t have to be on the deed for her to have ownership rights. She’ll still need to sign as a grantor on the deed along with her husband to sell the home. However, if the husband owned the property before the marriage and his wife isn’t on the deed, the husband can legally sell the home without his wife’s consent.
MJ: Hang in there with us. We have just a few more points on titling of assets. We’ve gone over a lot, and today’s podcast is likely generated some questions in your mind regarding your individual, unique situation. Bob and I, we’re here to help. So, give us a call at CIS Wealth Management or schedule a complimentary consultation on our website at ciswealth.com
Bob: Well, so far we focused on assets held in joint names. Now, let’s look at property that is sole ownership and in one name. Typically, assets in a single name are controlled by a will, but it can also be controlled through a transfer on death. We call that “TOD” or a payable on death “POD” designation. Establishing accounts with the TOD or POD designation bypasses the executor or administrator of your estate. The beneficiaries must take steps to re-register the account into their names.
MJ: There are also contractual relationships. These are accounts rule by a beneficiary designation. These types of accounts pass by named beneficiaries as part of a contract. Commonly held contractual accounts are annuities, life insurance policies, employer sponsored retirement accounts such as your 401k, 403b, 457 plan, and even your IRA and Roth IRAs. The will only controls disposition of contractual accounts if no beneficiary is specified or if the state is named as the beneficiary. So reviewing your beneficiary designations periodically is a really important step to a solid financial plan. Life gets crazy at times, and situations change as your life evolves. I can’t tell you how many times I’ve seen the name of a former spouse still listed as the beneficiary on a 401k or an IRA, and now there’s a new spouse. Ouch. I’m thinking somebody’s not gonna be too happy about this. What about you, Bob?
Bob: I’ve seen million dollar life insurance policies where the old spouse is still listed as the beneficiary.
MJ: Oh, that’s trouble happening.
Bob: So finally, for the last thing in today’s podcast – let’s look at assets that can be held in a trust. There are many types of trusts that can be established to take ownership of assets. The type of trust you choose can vary depending on what you want to accomplish and could have a significant impact on income and estate taxes. The final disposition of the asset and a trust will be determined by its terms. If you think your situation is complex and a trust might make sense, now’s a good time to seek the services of a trusted legal advisor. We can always provide a referral if needed. So, that’s it for the day on a very complicated but extremely important topic that nobody’s talking about. For more information about today’s podcast, please feel free to contact us by calling (830) 609-6986 during business hours or by going to www.ciswealth.com
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That’s all for now, until next week!
This episode of Christian Financial Perspectives is provided for general education purposes only and may not be complete in nature. Neither Bob Barber nor Mary Jo Lyons are attorneys. We encourage you to seek both tax advice and legal counsel relating to your individual needs and circumstances before taking any action. Investment advisory services offered through Christian Investment Advisors Inc. DBA CIS Wealth Management Group, a registered investment advisor. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional.