Have You Done Proper Estate Planning? Part 2 of 4

The Importance of Title

Everything in estate planning comes down to title.  Personal protections depend on title.  Tax savings depend on title.  In other words, you and your family only receive the benefits of your planning if your planning controls your wealth.  Control comes from title.

There are basically three types of title:  Individual Name, Joint Name and Contract.  Joint name property includes tenancy in common, joint tenancy with rights of survivorship, and in some states, tenancy by the entirety.  There are also a few states, including Arizona, that have a different type of "joint" title - community property.  Contracts include beneficiary designations (such as on insurance and retirement plans) and trusts.

Assets owned in individual name are the only assets that are controlled by a will.  Jointly owned accounts and beneficiary designations are controlled by operation of law.  Only assets owned by a trust are controlled by the instructions of that trust.

The Pitfalls of Jointly-Owned Property

• Your joint tenancy property can pass to unintended heirs.
• Joint tenancy does not avoid probate, it only delays it.
• There may be unintended gift and estate taxes if joint tenancy is used between non-spouses or with children.
• The joint tenancy property may be subject to your joint tenant's creditors.
• Joint tenancy makes no provisions for estate tax planning.
• Joint tenancy doesn't allow you to give your property to whom you want, when you want, and the way you want.

The Pitfalls of Planning with a Beneficiary Designation

• Designating your beneficiaries on a standard business form "beneficiary designation" often means losing control of a major part of your estate.  It does not enable you to leave instructions or provide guidance to your loved ones.
• Oftentimes the wrong beneficiary is name in the beneficiary designation.
• A beneficiary designation won't protect your spouse and children from creditors or unscrupulous people.
• Equal distributions from a beneficiary designation can  cause unequal results that won't meet your family's special needs.
• Beneficiary designations make no provision for federal tax planning.

The Pitfalls of a Will

• Wills guarantee probate - which can generate executor and attorney fees and cause much time delay before your loved ones can receive their inheritance.
• Wills are fully public.  They are open to inspection by anyone who wants to know about your will and affairs.  
• Wills offer no planning or direction for you or your family in the event of your disability.
• Wills are easily challenged by unhappy relatives.
• Wills most often don't control their makers' life insurance proceeds, retirement benefits, or jointly-owned property.  
• Wills are often bare-bones form documents written in hard-to-understand language.  They don't capture the hopes, fears, dreams, values and ambitions of their makers.

The Pitfalls of a Trust

• Although most living trusts appear to be better than wills, they are about the same as wills if not fully funded, because they do not avoid probate.
• Most living trusts are sterile legal forms that do not contain instructions for loved ones.  They only accomplish limited objectives.