Asset titling: How to do it and why it matters

Assets are the things or property you own, such as your home, vehicles, bank accounts, investments, a business, and even jewelry and artwork. A title, at least in the financial sense, refers to legal ownership of a property or an asset. It represents whose name will be listed on the asset for ownership purposes. In short, asset titling is the way you own assets.

The way an asset is titled affects who will have legal rights to own, transact, and even transfer any rights in the property or asset. 

How your assets are owned, or titled, is more important than you think. Asset titling can have significant benefits now, and even more for your heirs.

Why proper asset titling matters

Asset titling isn’t just about putting names on property or accounts. It’s a planning strategy that can have far reaching effects on all aspects of your life and your finances today and for years to come.

It's critically important to understand what proper asset titling means for ownership rights, taxes, creditor protection, and even what happens in the event of death or divorce. Making a mistake can cost you, or possibly your heirs, a lot of time and money if not done properly.

Here’s what proper asset titling can mean for the things you own:

Ability to use and transact

The person or persons listed on an asset can legally use it or make decisions around it, such as buying, selling, or transferring the asset. Proper asset titling can make ownership easier for you and/or your partner. If your name isn’t listed on the asset, you may not be able to take any action unless you are named as an authorized person or named in a power of attorney document.

Creditor protection

How you own an asset can protect you from creditors or even lawsuits. This is especially applicable for married couples, because properly titling an asset can provide protection against debts owed and even bankruptcy in some cases.

Separation of assets in a divorce

Outcomes from a divorce can vary for many reasons, including individual state laws, but asset titling can affect the outcome as well. Assets that are gifted or inherited before or after a marriage can be protected with proper titling.

Protection of assets from health care costs

Should you or a family member ever need care that isn’t covered by health insurance, how assets are owned can impact your ability to qualify for state benefits to help reduce or cover the cost of ongoing care (also called long-term care).

Impact of financial aid for college 

How assets are titled can even impact the amount of financial aid your family receives. Knowing how to own assets and where to save your money can save thousands of dollars, if not more.

The impact on your estate plan

Asset titling plays a very big role in what happens after your death. Proper titling can help in several ways:

1. Avoid probate

Probate is the process of dividing up your assets following your death, and it involves court supervision. Essentially, the court wants to validate your will and ensure the right people get the right assets per the instructions in your will. This can be a good thing, but it can be very time intensive and a little costly depending on where you live. Plus, your entire estate becomes public information. Properly titling your assets can help you avoid probate and therefore save you time and money..

2. Control of assets

Done right, you can place assets in a trust, which allows you to provide instructions for how assets are to be invested and used even after you have passed. You can name a trustee and provide instructions as to how to manage your assets to provide for your surviving family members.

3. Estate taxes

How you title assets will determine whether or not they are included in your taxable estate. Currently, you will only be assessed a federal estate tax once your assets exceed $12.06 million (in 2022). It's a high bar, but something to consider.

Important note: Your will doesn’t control everything. Regardless of what your will says, retirement accounts and life insurance policies will be distributed based upon the beneficiaries you have listed, and jointly owned property typically passes outright to the surviving owner.

How to title real estate and other assets

There are many ways to own or title property and assets. Here are the more common ones:

Individual

This is also called sole ownership, and it means that you have sole (or complete) control of the asset. You can sell it, gift it, or do anything you want. However, it is fully subject to any claims of creditors and any lawsuits that may be brought against you. Individually owned assets will be included in your estate, subject to probate, and pass per your will.

Payable (transferable) on death

Individually owned accounts pass as outlined in your will via probate, which is a court-supervised process for distributing assets and settling an estate. If you want to avoid this, you can add a payable on death (POD) or transferable on death (TOD) designation to the account. It allows you to add a beneficiary to an account just as you can for a 401(k), IRA or life insurance policy. In some states probate can take up to a year; POD or TOD can shortcut that significantly.

Joint ownership

There are actually three types of joint ownership. They are:

• Tenancy with Rights of Survivorship: Most common form of joint ownership; both owners have complete control over the entire asset. When one joint owner passes away, their entire interest (50%) passes to the surviving owner. At death, half of the value of the asset is included in your estate for tax purposes, but the asset does not go through probate or your will.
• Joint Tenants in Common: Most joint ownership is a 50/50 split, though you can decide what percentage each owner has in the property. When one owner passes away, their ownership interest does not automatically pass to the surviving owner. The individual gets to decide who gets the ownership rights, which is typically done via their will. Their ownership percentage is included in their taxable estate.
• Joint Tenants by the Entirety: Similar to tenants with Rights of Survivorship, with an extra layer of protection against creditors. If one spouse has an issue with creditors, creditors cannot come after the property. This is only available to married couples and only in certain states, and in some cases only for real estate. Check your state laws.

Marital property

While this isn’t technically a way of taking legal title to an asset, it’s important to know that some states will limit how married couples can manage and divide their assets. There are two types of states: common law states and community property states. 

• In common law states, any income earned or assets created during a marriage remain separate unless they are moved into joint property. 
• In community property states, income earned and assets created while in a marriage are automatically considered joint property, even if they’re titled in only one spouse’s name. Assets that are gifted or inherited can remain separate unless they are moved into joint ownership.

Retirement and investment accounts

IRAs, 401(k)s, and other retirement accounts are always titled in your name. It’s important to know that these accounts are distributed based upon the beneficiaries on file when the owner passes away. They do not pass through your will unless you specifically name your estate as the beneficiary. This is a very common mistake, so be sure to review your beneficiary elections periodically.

Trust

There are several types of trusts, but all allow you to maintain control of your assets while you are alive and after your death. You can name someone to oversee and manage your assets (called a trustee). A trust also avoids probate and allows you to keep your financial affairs private.

Child’s name

You can, in some cases, put assets directly in the name of your child. While this can seem like a good idea when they receive gifts, the money becomes theirs when they reach a certain age (18 in most states) and any money in their name can substantially reduce any college financial aid. When calculating financial aid, up to 20% of the assets in a child’s name can be deemed usable for college related costs, whereas only 5.64% of parent assets will be included. 

Why asset titling is an ongoing strategy

The way you title your assets can have far-reaching effects. So, it’s important to review your strategy periodically. When you get married, for example, you may want to change the beneficiaries on your life insurance policy and retirement accounts. If one of you is moving into a home owned by the other, you may want to rethink how the home is owned. You may open joint bank or brokerage accounts. If you move from a community property state to a common law state, you may need to retitle some assets.

It’s equally important to make sure that what you own (assets) and how you own them (titling) matches your overall financial planning strategy, which will evolve and change over time.

Ensure that you discuss the implications of your decisions with your team of tax, legal, and financial professionals. With the right strategy, you can create peace of mind and protect what matters most.