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The Importance of Correctly Titling Your Assets

The three most common ways in which you can own assets at the time of your death are individually (in your own name), jointly (along with at least one other person), or by contract (naming an ultimate beneficiary). Depending on what your goals are during life and after death, the way you title your assets could be the difference between financial wealth and financial hardship for your children and/or beneficiaries.

Individual Title

Everything that you own in your own name at the time you die must be probated. This includes your home, any rental properties, any life insurance policies, jewelry, bank accounts, stocks, cars, baseball cards, you name it, and it’s included. Probate should be avoided at all costs. The probate process is extremely costly, as it usually costs your heirs between 4 and 7 percent of the entire estate. The probate process is extremely time consuming, as it may take years to complete and deprive your family of the enjoyment of the assets you left to them. The probate process is public record which means that anyone with a computer can view all of your most personal decisions and the embarrassing infighting that might have arisen out of those divisions.

Beyond the perils of probate, any assets that are individually owned may be taken from you through law suits, creditors, or divorce. Assets titled in your own name are not protected and can be easily lost. These assets are also added to your total estate and taxed at whatever the estate tax level is that year. In 2011, the estate tax will be 55 percent. That 55 percent is in addition to the 20 to 35 percent in income tax that you have been paying during your entire life. Titling assets in your own name is very dangerous and unwise.

Joint Title

Having your assets titled jointly at the time of your death means that the items will pass to the person that shared title with you automatically at the time of your death. The benefit of this form of title is that the asset titled jointly does not need to be probated and there can be no fight over the correct distribution or devise of the asset. However, the negatives of joint titling far outweigh the positives. Having your assets titled jointly may lead to the loss of certain valuable tax savings at the time of your death. Joint titling also forfeits any future devise of your assets. If you wished for any of your children or other relatives to one day enjoy your property, they will be unable to since you retained no ownership of the property and forfeited your right to gift it to your beneficiaries after your death.

Another disadvantage to the joint titling of assets is that you might get stuck with any debt arising from the property if you are the last person standing. Any mortgage on real property or other debt arising out of the property will now fall on you to cover. Further, a jointly titled asset restricts how you can use the property during your life. If you have equal ownership stake, you cannot sell or transfer the property without unanimous consent from all parties sharing ownership. This could lead to conflict and loss of profit. Titling assets jointly is not ideal.

Title By Contract

Titling your assets by contract is a much safer way to control who ultimately gets your assets. Usually, titling by contract is accomplished by naming a beneficiary. Almost any monetary account can have a beneficiary named. Bank accounts, retirement accounts, brokerage accounts, and life insurance policies all have remainder beneficiary options. By naming your beneficiary during life, you can control who gets the proceeds from the account upon your death. The benefit of this form of title is that there can be no discussion about your true intentions; there can be no fighting between your beneficiaries. While you may not have to worry about loss of control of assets titled by contract while you are alive, you are forfeiting a lot at the time of your death.

Any assets owned in your name at the time of your death will be added to the value of your estate for the purposes of calculating your estate tax amount. This includes life insurance, annuities, retirement accounts and any other asset titled by contract.