Estate planning is a topic that for some might be overwhelming. Trying to wrap your head around all the information that’s out there about what should be a straightforward subject can be confusing, right?

In today’s blog post, we’re going to breakdown estate planning into two very basic, but essential legal principles: TITLE OF ASSETS and TYPE OF LEGAL DOCUMENT.

More importantly, we are also going to explain why the TITLE OF ASSETS and TYPE OF LEGAL DOCUMENT must be coordinated together.

Let’s start with TITLE OF ASSETS 

A question I’m often asked as an Estate Planning attorney is when something happens to a family member or other loved one is “What do we do now?” The answer to that question does not depend on whether or not they had a Will. Instead, what will determine the next steps is how their assets were titled.

For example, let’s say I paid an attorney a fee to prepare a Will for me which states that upon my death, I wish for everything I own, including my home, bank accounts, life insurance and retirement account to go to my wife. However, at the time of my death, I own my home and bank accounts jointly with my wife, and I have my daughter named as beneficiary of my life insurance and retirement account.   By the law of TITLE,  everything that I own jointly with my wife goes to her, and everything that has my daughter named as beneficiary goes to my daughter, regardless of what the TYPE OF LEGAL DOCUMENT ( i.e. my Will) I have chosen states.

TITLE of assets comes in two forms:  Ownership and Beneficiary Designation. Some assets like real estate/home, bank accounts or brokerage accounts allow me to own them in my name alone (called Sole Ownership), and allow me to own them in my name and someone else’s name (called joint ownership). If I own an asset joint with myself and another, then when something happens to me, that asset automatically passes to the surviving joint owner – despite what my legal document provides.

Some assets do not allow me to own them jointly with another person – even my spouse. Assets such as Retirement accounts (IRA’s/401k) or life insurance policies must be owned solely by me. However, these types of assets allow me as the owner to designate or name a beneficiary to receive the asset when I die, again regardless of what the TYPE OF LEGAL DOCUMENT that I choose may state. Beneficiary Designation is a form of TITLE and if beneficiary Designation contradicts what my LEGAL DOCUMENT then TITLE determines what happens when something happens.

First time reading about this, huh?

That’s because when the topic of estate planning comes up – say at a seminar you may have been invited to attend or a popular nationally syndicated radio show host talks about the subject or you ask your personal attorney or even financial advisor the question “What happens to my assets when I die” – the answer is to get a Will or update the Will you may already have.

Rarely, is the topic of TITLE of asset  even mentioned. Most attorneys and other advisors who call themselves “estate planners” focus on the TYPE OF LEGAL DOCUMENT as the key to your estate plan. The typical TYPE OF LEGAL DOCUMENT most recommended is a Will.

Don’t get me wrong, it’s important to have your wishes about what you wish to happen when you die put down in a legal document, and the TYPE OF LEGAL DOCUMENT you choose to express your wishes is also important.  However, a Will is not the only TYPE OF LEGAL DOCUMENT that you can choose to express your wishes. Another TYPE OF LEGAL DOCUMENT is a Trust. 

Let’s explore the similarities and differences between a Will and a Trust.

Similarities

Wills and trusts are both legal documents where you can state or express your specific wishes about the transfer of your assets at your death. Both a Will and a Revocable Trust can be changed, altered, amended or revoked by you at any time during your lifetime. Both a Will and a Trust have individuals you name to carry out your wishes or instructions at your death. In a Will the individual(s) is called an Executor, and in a Trust they are called a Trustee.

Differences

The biggest difference between a Will and a Trust is with a Will you cannot TITLE your assets in the name of a Will until after your death AND after your family goes through the public, government process called Probate.

A Trust on the other hand is not only a legal document, but it’s also a legal entity in that it’s like a corporation or a person. Which means that you can TITLE your asset(s) – like your home and bank and financial accounts in the name of your Trust. Because you can TITLE your assets in the name of your Trust while you are living, when you die, there is no need for your family to go through probate.

Choose a Revocable Trust, and you DO NOT give up any OWNERSHIP of any asset you TITLE in the name of your Revocable Trust.

Beneficiary designation

Because your trust is a legal entity, you can also name your Trust as the beneficiary of your IRA or life insurance policy, and doing that makes those assets protected for your beneficiaries at your death, including protection from divorces, bankruptcies, lawsuits and other creditors they may have.

Coordinating everything together

Because a Revocable Trust is the TYPE of estate planning document that allows you to TITLE assets in coordination with your wishes while you are living, without giving up ownership or control over your assets, then you have the peace of mind of knowing exactly what’s going to happen when something happens – without you or your family having to go through any extra steps like Probate. Not to mention having the peace of mind of knowing your family (surviving spouse, children or grandchildren) will also be protected – all without you having to give up ownership of your assets while living.

As you can see these are two significantly different tools. It is best to work with an experienced estate planning attorney who can help you decide why a Trust is a better planning tool. Contact Kevin Tharpe today!