Avoid Critical Flaws When Assigning Titles

Physician's Money Digest September 2005
Volume 12
Issue 13


More than likely, ifyou've taken thetime to develop anestate plan, you'vedone so becauseyou want to ensure that your assets aredistributed exactly how you would like.Unfortunately, it doesn't always workout that way. According to an article in, misallocation occurs becauseyour estate plan could have one or morefatal flaws, mostly due to the way assetsare titled. Consider the following keytitle-assigning pitfalls:

•Kids will be kids. If you're countingon your children to amicably workout the distributions on your estate,stop counting. If you are a widow orwidower who sets up a joint bankaccount with your child to help paybills, technically, both parent and childare joint tenants with right of survivorship.However, when the parent dies,the account legally belongs to this childeven if there are other siblings involvedand the parent's will states otherwise.

To protect all your surviving children,give your child power of attorneyover the account, but do not establish itas a joint account. Also, you can specifyin your will that your estate's distributionsbe adjusted to compensate forany joint accounts.

•Who's your beneficiary? Dependingon how you want your estatehandled, how you name a beneficiarycan make all the difference. Why? Retirementaccounts and insurance policies,just like joint accounts, are notnecessarily held to your will.

Let's say you create a trust for yourinfant daughter that finances her collegeand graduate school expenses. At age30, she would be entitled to her inheritance.However, if your $1 millioninsurance policy names her as the beneficiaryrather than the trust, most stateswill give her the cash at age 18.

•What's mine is yours. Sentimentalitydoesn't work with estate planning.For example, a common trust strategy isto preserve the estate tax exemption ofthe spouse who dies first. One way todo this is by utilizing a trust.

One of the best ways to fill a trust iswith liquid nonretirement investments,such as a brokerage account. However,if that account is owned by both spousesjointly with the right of survivorship,then upon the death of the first spouse,their half goes directly to the survivingspouse, not to the first spouse's estate.To avoid this situation, split jointaccounts into individual accounts.

•Take into account where youlive. If you live in a state with communityproperty laws, it's important tonote that property acquired before marriageand via inheritance is treated asseparate, while property acquired duringmarriage is considered joint. However,spouses can write an agreementindicating pieces of property as eitherseparate or joint.

This agreement is important becausecommunity property residents haveflexibility when it comes to filling abypass trust, through which estate taxescan be reduced. Let's assume a wife in acommunity property state has a $3 millionbrokerage account in her name thatwas accumulated during her marriage.When her spouse dies, unless the couplespecifically designated the account asseparate property, the spouse's bypasstrust can be filled using $1.5 million insecurities from the account.

•Avoid transferring assets. Oursociety is litigious, and few know thisbetter than doctors. Don't panic andtransfer all assets into a spouse's namesimply to protect them. Such actioncould make it difficult to fund bothspouses' estate exemption.

Instead, the physician should ownassets that are exempt from a creditor'sreach. Generally, such assets include aprincipal home, certain retirementaccounts, and insurance benefits. Yourspouse, if they are not a physician,should take ownership of nonexemptassets, such as brokerage accounts andother real estate.

Take the time now to make certainthat your will is carried out exactly theway you intend. By assigning yourassets the correct titles, your estate planwill work and major problems will beavoided.

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