Broker Check

What’s in a Name?

September 08, 2021

I have a few people in my family that call me Lars…although my given name is Lori. It’s an endearing nickname I’ve grown to love.

Love is a funny thing. We may show our love to those around us in traditional ways…gifts, going to dinner, offering service, and showing compassion. The list goes on! But one of the best ways to show love is to properly title and designate beneficiaries so that your assets are distributed according to your wishes and with minimal involvement from probate.

I often get the question from newly married, or engaged couples on whether or not they should combine their bank accounts or leave them separate. Unfortunately, it’s not a simple yes or no.

While it’s common in first marriages for couples to combine bank accounts into one joint account, I often see couples in their second marriages keeping their accounts separate.

While bank accounts are only one consideration, we have other assets we need to consider as well. When children are involved from prior marriages, this can add another level of complexity.

You need to ask yourself a few questions:

  • Would I like my spouse to have access to my account?
  • Do we want to setup an account together?

While these appear to be simple questions, let’s consider another.

  • When I pass away, who would I like to inherit my assets? My spouse? My children from a prior marriage? My grandchildren?

Depending on your answers to the questions above, this may dictate how you should title your assets now.

Many people have heard of probate, which is the process by which a court oversees the administration and distribution of the deceased owner’s property until it is transferred to its intended beneficiaries. To avoid the delay, expense and publicity associated with probate, many people seek to avoid having their assets pass through probate. There are several key techniques that can accomplish this while protecting the privacy and wishes of the deceased.

Assets that are considered non-probate property can pass to heirs in 3 different ways:

By Operation of Law
By Contract
By Trust
Let’s explore a few examples of each.

By Operation of Law. A common example of a non-probate transfer by operation of law is JTWROS, which stands for Joint Tenancy With Rights of Survivorship. Both real and personal property may be titled as JTWROS, which means upon the death of one of the owners, the property passes to the surviving tenant(s), thereby avoiding probate. Bank accounts, joint investment accounts and personal residences are common assets to be titled this way amongst married couples.

Don’t confuse this with Tenancy in Common, which becomes part of the probate estate and must be bequeathed by a decedent’s will.

By Contract. Many people have assets that fall under the By Contract transfer technique. Common examples are life insurance policies, annuities and retirement plans. When establishing a life insurance policy, starting an annuity, or opening and contributing to your 401(k) at work, you are asked to designate a beneficiary. By doing so, you are entering into a contract, that is enforceable upon your death, to distribute your life insurance proceeds, death benefit, or remaining balance on your retirement account according to this designation. By doing so, this avoids probate and these assets will not be subject to any will provisions.

By Trust. Many financial advisors and estate planning attorneys work with their clients to identify whether or not a revocable or irrevocable trust is appropriate for their specific needs. A revocable living trust is established by the grantor (the owner) during his or her lifetime. The grantor maintains complete control of the assets during their lifetime and may change or revoke the trust at any time before death. By transferring the property to the trust, it removes the property from the owner’s probate estate. Upon death of the grantor, the trust becomes irrevocable, and the assets are distributed according to the terms of the trust document. While an irrevocable trust is treated the same at death, the grantor forfeits all control of the trust while living. The grantor may not change, amend or revoke the trust.

It’s important to note that while you may have a will that provides instructions for the distributions of your assets, the techniques above will take precedent over any instructions left in your will. Properties that do pass through probate and will be distributed according to your will include: fee simple, sole proprietor, tenancy in common, partnership interests and community property.

If you are re-married, it’s vitally important that you make the necessary changes to any above-mentioned techniques so that the intended recipients receive your assets upon death.

So, in addition to those endearing nicknames and other signs of affection, don’t forget to review the titling of your assets and your designated beneficiaries. Your loved ones will thank you!

Securities and Advisory Services offered through The Strategic Financial Alliance, Inc. (SFA) – Member FINRA, SIPC. Advisory Services also offered through Strategic Blueprint.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. The SFA does not provide tax or legal advice.