Asset titling COMMON TYPES OF ASSET TITLING

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1 Asset titling is one of the most important and often overlooked aspects of an estate plan. It determines creditor rights, how property can be disposed of during your lifetime, who receives the property upon your death and how income and income taxes are apportioned among property owners. How assets are titled or the type of account an asset is held in can determine if the asset will be distributed at your death pursuant to the terms of your Will, pursuant to a beneficiary designation you have completed, or be distributed based on an agreement or state law. For many TIAA-CREF participants who have a significant percentage of their assets in retirement accounts, coordinating how assets are titled and beneficiary designations for such accounts are prepared is a critically important aspect of their estate planning. Therefore, you should work with your financial advisor and attorney to carefully coordinate asset ownership with your estate plan to ensure your assets will pass to beneficiaries in the manner you intend and that any tax planning becomes effective at your death. Additionally, a careful review of asset titling and beneficiary designations is particularly important if you have lived in multiple states. Each state may recognize different forms of ownership and transferring an asset to another state could terminate the form of ownership (e.g., moving from a community property state to a common law state). A sample asset list is included on the last page of this document to help you review your asset titling. COMMON TYPES OF ASSET TITLING Sole Ownership When you have sole ownership of an asset, you have complete title to the property. If the property is titled in your name alone and contains no beneficiary, it generally passes through your probate estate upon your death. If you have a Will, the terms of your Will determine how the asset will be distributed. If you do not have a Will, your state s intestacy law generally determines how the asset is distributed. Intestacy laws vary from state to state. Typically, a state s intestacy law distributes solely owned property to a spouse, children, parents, grandchildren, siblings, nieces, nephews and/ or cousins in varying orders of preference. Joint Tenancy With Right of Survivorship A joint tenancy with right of survivorship can be created by two or more people, not necessarily related to each other. Assets held jointly are equally owned by two or more people - each having rights of survivorship. Upon the death of one joint tenant, the property becomes the solely owned property of the surviving joint tenant(s). As such, one of the benefits of having assets titled jointly with right of survivorship is that the asset automatically passes to the survivor(s) allowing them immediate access to the property without the cost and delays associated with probate. The deceased tenant s interest in any joint tenancy property receives a step-up in cost basis, which means that the surviving owner s basis will increase. One of the disadvantages of joint tenancy is that it can result in loss of control over ultimate disposition of property the asset will not pass per the terms of your Will but will pass automatically to the co-owner(s).

2 Tenancy by the Entirety Tenancy by the entirety is a form of joint ownership that is only available between spouses. Not all states recognize this type of titling. Where this form of ownership is allowed under state law, neither spouse can restrict or dispose of the property without the other spouse s permission. This type of title provides creditor protection except with respect to a federal tax lien, which attaches to entireties property even if only one spouse is liable for the taxes due. Tenancy in Common Two or more owners, including spouses, can own property jointly as tenants in common. Property owned as tenants in common does not have a survivorship feature and may have equal or unequal fractions of ownership. This type of ownership is similar to sole ownership in that when one of the owners dies, the property interest owned by the decedent passes either by beneficiary designation, by the deceased owner s Will, or by state intestacy law. For example, Jane and Jill own a piece of real property together as tenants in common. This form of ownership provides that each owns an undivided 50% share of the property, and each may dispose of her share during her lifetime or through her Will following her death. Community Property In a community property state, assets acquired after marriage are considered community assets and are owned one-half by each spouse. The theory underlying community property is analogous to that of a partnership. Each spouse contributes labor (and in some states, capital) for the benefit of the community, and shares equally in the profits and income earned by the community during the marriage. Thus, each spouse owns an automatic interest in all community property, regardless of which spouse acquired the asset. Community property carries no automatic right of survivorship. Each spouse may pass his or her share of the asset to whomever he or she names in his or her Will. For estate planning purposes, the distinction between separate property and community property is important. An advantage of community property is that upon the death of the first spouse, the community property receives a full step-up in cost basis to its current fair market value (meaning that each one-half interest receives a step-up in cost basis upon the first spouse s death). Community property states include Alaska (community property can be elected in Alaska), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In addition, Puerto Rico also uses the community property system. Community Property With Rights of Survivorship Some states also recognize community property with rights of survivorship wherein the first spouse s share of any community property is automatically distributed to the surviving spouse by operation of state law (similar to property held as joint tenants with rights of survivorship). Like other community property, the property receives a full step-up in cost basis to its current fair market value. Generally, this form of ownership provides the benefits of survivorship without probate, and immediate access to the property by the survivor. However, this form of ownership can result in loss of control over ultimate disposition of property. If you move from a community property state to a non-community property state or vice versa, it is important to consult your Wealth Management Advisor regarding the implications of community property laws on asset ownership and transfer. 2

3 Revocable Trust Assets that are properly titled to a Revocable Trust pass privately under the terms of the trust. These assets will not be subject to probate administration. To be effective, when your Revocable Trust is established, you will need to re-title ownership of your assets to the Trustee of your Trust. For example, John Doe, Trustee of the John Doe Revocable Trust under agreement dated January 1, If your assets are not transferred to your trust during your lifetime or added to your trust at your death (e.g., by the terms of your Will or a beneficiary designation), the terms of the trust will not dictate how the assets are distributed. For example, assets held jointly with right of survivorship will pass to the surviving joint tenant, and individually held assets or your share of assets held as tenants in common will pass through probate and according to the terms of your Will. If you want an asset to be held, administered or distributed pursuant to the terms of your trust following your death, you should transfer the asset to your trust during your lifetime (i.e., re-title the asset in the name of the trust as described above), or have the asset added to the trust at your death (e.g., through the terms of your Will or by a beneficiary designation that adds the asset to your trust). If both you and your spouse have Revocable Trusts, your attorney or tax advisor should help you decide which trust the asset should be held in or whether it should continue to be held in another form of ownership. COMMON TYPES OF ACCOUNT BENEFICIARY DESIGNATIONS Beneficiary Designations Certain property will pass upon your death by way of a beneficiary designation. These forms are often provided as part of a contract issued by the plan provider for life insurance, annuities and retirement plan assets (e.g., IRA, 401(k), 403(b), 457(b), pension and profit sharing plans). If you fail to execute a beneficiary designation form, typically the plan will have a default beneficiary, which is usually your probate estate. Transfer-on-Death/Payable-on-Death (TOD/POD) Some states permit certain property to be held with a transfer-on-death or payon-death designation. When held in this form, the property passes to the named beneficiary at the property owner s death. For example, a checking account in a state recognizing this form of ownership is typically titled as, Jane Smith POD John Doe. At Jane s death, John automatically owns the checking account without the account going through probate and regardless of the terms of Jane s Will. Beneficiary Deeds Some states also recognize beneficiary deeds (also called transfer-on-death deeds). A beneficiary deed is filed with a deed to the real estate, which is the subject of the beneficiary deed. The beneficiary deed identifies the person(s) who are to receive the real estate following the property owner s death. The designation is typically fully revocable during the owner s lifetime. If the beneficiary deed is still in place at the owner s death, the property passes to the designated beneficiary without going through probate. The property is still included in your gross estate for estate tax purposes. To learn more about asset titling and issues that may apply to your financial situation, please contact your Wealth Management Advisory Team. 3

4 The tax information herein is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. It was written to support the promotion of the Wealth Management Group services. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor. Examples included herein, if any, are hypothetical and for illustrative purposes only. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value. Wealth Management Group services are provided through Advice and Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a Registered Investment Adviser. TIAA-CREF Individual & Institutional Services, LLC also distributes securities and provides additional brokerage services in its capacity as a registered broker/dealer, member FINRA. TIAA-CREF Trust Company, FSB provides investment management and trust services Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), New York, NY C1841B (1/12)

5 Sample asset list Type Asset Husband Joint property Real estate Community property Wife Beneficiary Tangible personal property Cash Securities IRA s Qualified assets and annuities Liabilities Totals