Let’s talk about your name. You may love your name, or think it’s just okay, or wish you had a different name, and these days, you can legally change your name if you want.
But that’s not really the name that we need to make sure we get correct. I am referring to the legal name, a.k.a. title, on everything you own – from your home or other property, to bank accounts, your vehicle, and investment accounts. So, what’s in your name?
Okay, that’s probably not as much fun as you had in mind, sorry! But I cannot stress enough how important it is to get those “names” correct! In the United States, what’s listed on the title of an asset (an asset is anything you own of value) will dictate where it goes after you are gone.
So, a great exercise is to take a look at every asset you have and ask yourself, “Where do I want this to go?” then make sure the title reflects that. Please allow me to step onto my soapbox for a few minutes as we take a look at some examples to give you a better idea of your options.
A common asset title we are often familiar with is a Joint with Rights of Survivorship ownership (sometimes abbreviated as JWROS). If you are married, for example, often your bank accounts are titled this way, so if something happens to one of you, the other seamlessly remains the owner of the account.
But what if you are single and your bank accounts are just in your name?
You can still “tell the account where you want it to go after you’re gone” by adding a POD (Payable on Death) designation if it’s a bank account or a TOD (Transfer on Death) designation if it’s a non-retirement investment account or piece of property (like your home or even your vehicle in some states).
What you are essentially doing is adding a beneficiary designation to a non-retirement account, simply by filling out and signing a piece of paper at each institution.
Lastly, if you have a trust in place as part of your estate planning documents, your attorney often recommends “funding your trust” which means re-titling your non-retirement assets into the name of the trust.
I never liked the word “funding” because to me that sounds like there are costs involved, but the only cost is your time in getting the paperwork completed.
You still have control, your financial power of attorney is also now referenced on that account in the trust document, and you save significant time, cost, and headache for your heirs by doing this now vs leaving it to them to deal with later.
To motivate yourself to take care of this paperwork, it is helpful to understand why you should care about correcting your asset titles.
If there is no joint owner, trust owner, or “beneficiary” on a non-retirement account, it may have to go through the probate process (depending on the dollar value of the account and your local probate laws).
Probate, in its basic form, is a court process of dealing with the estate of someone who has died, which generally means clearing debts, valuing assets, and then distributing them in accordance with the will/trust.
Settling an estate can often take six months to three years. Probate means there will be an additional delay and added costs involved before distribution to the new owner(s). If you can avoid delays and added costs (probate) by simply signing a form, wouldn’t you do that?
Having helped families for the past 20 years with all aspects of financial planning, I would have to say that this estate planning “homework” piece is the most misunderstood and biggest back burner item for everyone that I have met with. It is usually a case where we don’t know what we don’t know.
That is why I wrote several little financial checklist books to help people avoid the most common estate planning mistakes. It might seem like an overwhelming task but that is why I help break it down into small manageable pieces.
Also, your attorney should explain in more detail the estate planning homework after you have signed your documents.
Once your documents (typically a will/trust, powers of attorney for financial and health care) are signed, families should update their asset titles (to trust, joint, or TOD/POD) on non-retirement accounts as well as update the beneficiary designations on retirement accounts and insurance contracts.
You want to ensure that all of those assets go to the same places you designated in your will/trust. Remember, a beneficiary designation is like a mini-will on each individual account.
Your IRA, for example, will not go to where your will/trust says; it will go to where the beneficiary form on file on that IRA account tells it to go.
That is why one woman I met with recently watched her deceased husband’s 401(K) go to his brother instead of her. He had never updated his beneficiary designation at the police department after they got married decades ago!
Also, naming a primary as well as a contingent beneficiary is usually a wise practice on those accounts too. The best news is that beneficiary designations provide for distribution without a probate process so there is no delay or added cost on those accounts/policies/contracts.
Whew! I know all this can feel overwhelming, but you just need to take the first steps. To help you get your “names” correct, I have created some free resources. It can really make a significant difference for your family in the end!
Have you updated your beneficiary designations on your trusts, will, and other important documents? Do you know who will inherit your assets after you are gone, or are you unsure? Have you experienced the complications of un-settled name titles with a spouse or parent? What was that experience like? Please share your stories and any tips you may have!