How Should Your Investment Accounts Be Titled?

By Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA Director of Research Senior Portfolio Manager

When it comes to their investment accounts, one thing that many people don’t think about is making sure their accounts are titled properly. Correct titling of accounts is essential to ensuring that account ownership is structured properly — which, in turn, ensures that your account assets are distributed according to your wishes after you die.

Common Misconceptions About Investment Account Titling

One central common misconception many individuals have when it comes to titling investment accounts is that, if they have an estate plan that includes a last will and testament and trusts, account titling isn’t important. However, account titling and estate planning must be coordinated together to avoid unintentionally titling accounts in a way that undermines your estate plan. Doing so can result in difficulties when it comes to orderly distribution of account assets after your death.

A second misconception is that once investment accounts have been titled, this is written in stone forever. But in actuality, circumstances change: people get married and divorced, have kids and inherit other assets. As your life circumstances change, you need to make sure that your accounts are titled accurately and in accordance with the directives in your estate plan.

Contact us to learn how we can help ensure your accounts are titled correctly.

Account Titling and Ownership: A Legal Issue

The titling of investment accounts is a legal issue when it comes to account ownership — therefore, account titling can supersede estate planning documents, including trusts and your last will and testament.

There are three primary types of account title:

  1. Individual account— This is the simplest way to title accounts — one person or entity owns the account. It is the best way to make sure that the account is distributed according to your wishes after you die.

If an account is titled in your name only, it will pass to heirs according to the terms of your estate plan (assuming a different beneficiary isn’t designated). The value of the account will be added to your estate, where it will be subject to probate and estate taxes during the year you die.

A special designation known as Payable on Death (POD) or Transfer on Death (TOD) can be added to an individually titled account. This supersedes any instructions in your will and ensures that the account is transferred to your designated beneficiary without going through probate.

  1. Joint Tenants With Right of Survivorship (JTWROS) — This is the most common type of account titling among married couples. When one spouse dies, the account will pass directly to the surviving spouse. JTWROS is usually the best choice for simple estates that don’t exceed the estate tax threshold or require more sophisticated planning techniques. 


    However, JTWROS titling supersedes a will so it shouldn’t be used if you have significant assets. This is because the joint tenant who dies is presumed to own 100 percent of the account, so his or her family will lose the account as it passes to the survivor and the family will have to pay estate taxes if the survivor isn’t a spouse.

    Like with the Individual account, a joint account could have the POD or TOD designation attached to it. In this case, the surviving account holder has the authority to make changes to the beneficiary prior to their death. This could be a problem if you are dealing with a situation of a second marriage and the remaining owner decides to change the beneficiary to their children, therefore, cutting out the late partners children.

    Joint Tenants by the Entirety. This type of account titling has the same basic structure as joint tenants with rights of survivorship. The primary difference is that it is only available to spouses. It's also worth noting that this type of titling adds a greater degree of asset protection from either spouse's creditors.  However, it does not provide asset protection should both spouses be subject to claim from the same creditor.

     
    As a side note, revocable trusts do not have the same degree of asset protection as does joint tenants by the entirety.  For those that live in Virginia, once assets are transferred to an account titled as joint tenants by the entirety, they can then be transferred to a revocable trust and continue enjoy the asset protection that joint tenants by the entity provides.  Virginia is the only state that provides this additional asset protection opportunity. 

  2. Tenants in Common (TIC) — This type of titling is usually recommended if an account is shared and will be subject to a will. It ensures that the account will be passed on according to your will or estate plan without the need for a living trust.

    When one account holder dies, his or her interest will pass to whoever is specified in the will, or to his or her heirs per law if there’s no estate plan. The account is considered to be equally owned among the number of common tenants.

True Beneficiary Designation Assets

Keep in mind that some types of investment accounts can only be transferred to heirs via a beneficiary designation form. Referred to as true beneficiary designation assets, these include life insurance, 401(k) and 403(b) plans, IRAs and annuities. It’s important to make sure that your beneficiary designations on these accounts line up with the rest of your estate plan.

On the beneficiary designation form, you will name your account beneficiaries (and contingent beneficiaries), as well as the percentage of the account that should go to each one. If you decide to not name your spouse as your beneficiary to your 401(k) plan, the law requires them to sign off on it acknowledging your consent. Be sure to update your account beneficiary designation forms as necessary to reflect major life event changes like marriages, divorces, births and deaths. Doing so is as simple as completing and signing a one-page form.

Not having a beneficiary designation on these accounts could mean they will end up going through probate and potentially not going to party you had intended them to go to.

This blog touches on some of the basic concepts of account titling. As family situations get more complex it is usually beneficial to utilize different types of trusts to title assets and potentially beneficiaries. The information presented in this blog is not legal advice and should not be taken as legal advice, we are not estate attorneys.

How ACG Can Help

At ACG, we work closely with estate planning attorneys and other professionals to help our clients ensure that their accounts are titled properly. If you have more questions about account titling, please give us a call.

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