Attorney-prepared estate planning documents aren't worth the paper they're written on if your client's assets are not titled properly.
Most clients have no understanding of the way that the titling of an asset directs its flow in their estate. They may have received a cover letter from their attorney detailing the steps needed to re-title their assets to complete their estate planning, but often it gets filed away with the documents and never addressed. When you do your review of a client's estate plan, make sure that the investment assets you manage are titled properly and find out about their other assets, especially real estate. Don't rely on your client's memory--have them actually check the deed.
The Most Common Misperceptions
Many clients think that all their assets will be distributed at their death according to the terms of their will or trust. It is important for them to understand that many assets--maybe everything they own--could pass outside their estate, depending on the way the assets are titled. It's not uncommon for couples to have wills that set up bypass trusts, and at the death of the first spouse, they discover there are no assets to fund the trust because they are all jointly owned and bypass the estate completely.
Problems such as these result from failing to understand the importance of titling.
Assets that are owned "joint with right of survivorship" or "tenants by the entireties" will automatically pass directly to the survivor. Also, any asset with a beneficiary designation will go directly to the named beneficiary. The most common examples are IRAs, other retirement accounts, life insurance, and annuities.
The three primary types of ownership are fee simple, tenancy in common, and joint tenancy with right of survivorship:
Fee simple is ownership by one individual, who owns all the property and can give it away, sell it, or leave it on death. The property is subject to probate at death and will flow into the client's estate to be distributed according to the terms of the will. Fee simple property can also be titled in the name of an individual's living trust to avoid probate.
Tenancy in common means that there is more than one owner, and each owns a share of the asset. Each owner has less control of the whole property than an individual who owns a fee simple interest, but does have the right to give away, sell, or leave his or her share at death.
Joint tenancy with right of survivorship is commonly used by married couples, but can be used by two or more individuals as long as they each have an equal interest and they acquire that interest at the same time. Each co-owner owns all of the property with the others. They can sell or transfer their interest during life, but cannot bequeath the interest at death. This type of ownership does not allow the deceased's share of the property to pass into his estate; rather, it transfers automatically to the other owner(s).
Another type of joint tenancy is tenancy by the entirety, which is available only to married couples and allows them to own property as a single legal entity. This means that they must act together when making any decisions about the property. For this reason, it is commonly used as an asset protection technique, as the creditors of one spouse cannot attach and sell the interest of the debtor spouse. This type of property passes automatically to the surviving spouse at the death of the first spouse.