Are account titles significant? In short, yes, very.
Details matter — a lot — in estate planning. Even the way accounts are titled can make a big difference, and many people don’t realize that this could legally supersede a will or trust.
Estate documents are part of the framework to make sure assets are passed onto heirs as intended. Account titles and beneficiary designations are another, sometimes overlooked, piece of estate planning.
The way an account is titled can ensure that assets are passed to heirs in the way the account owner intended and help minimize estate taxes. Yet, many people unwittingly title accounts or designate unnecessary beneficiaries in a way that undermines the estate plan established in wills and trusts.
“Beneficiary designations are very important,” said Samantha Vassallo, managing director, and senior wealth advisor with Truist Bank in Boca Raton.
There are several types of accounts that specify who’s entitled to the funds via beneficiary designation without going through probate court. In these cases, the funds will transfer automatically upon the death of the account owner. This applies to life insurance and retirement accounts, such as annuities, IRAs and 401(k)s, she said.
Account titles act in a similar fashion. A lot of married couples will title joint accounts with a right of survivorship, which means that the surviving account holder will inherit the total value. For married couples, another option is to title them as tenants by the entirety
“We’re seeing a lot of this done in Florida in recent years, as it also gives an extra layer of asset protection,” Vassallo said.
A third option is to title an account as payable upon death, which allows account owners to designate beneficiaries to receive assets at death.
Vassallo gave the example of a couple who states in their will their intent for their three children to inherit all their assets equally. Yet, one child is added to a checking account to help pay bills.
If both parents pass away in an accident, that account would go directly to that child named on the account.
“It would not be split equally between the three,” she said.
The same principles apply for families who are philanthropically inclined.
It’s important to make sure all estate planning is working in conjunction. For example, a will or trust that indicates charitable intentions should match the paperwork for a donor advised fund or a charitable trust.
Vassallo recommends professional advisors review account titles and beneficiary designations regularly, particularly following any life-changing event, such as a birth, divorce, or death of a spouse.
“It’s important with every client that they review both their primary and contingent beneficiary designations regularly for all life insurance, retirement plans, employee benefits, and any bank or investment accounts,” she said. “I think it’s also important to coordinate any pay-on-death titling or joint titling with a spouse or a partner. And it’s also important to confirm the account titling coordinates with your will and to avoid probate when possible.”
