Whether a family member’s death is unexpected or not, coping with a death in the family and all of the commensurate duties that fall to family members is always challenging.
As a professional who is responsible for providing advice to the family for the survivors of your own client, it is important to provide useful and practical advice that can be immediately used to make their days easier – which will allow them to grieve more peacefully.
Even during the immediate days and weeks after a death when grieving is the most challenging the closest survivors (especially the spouse) are often responsible for significant financial tax and legal decisions that can impact their long term financial security. Just like with all professional advice, a checklist does not substitute for comprehensive planning options and evaluation but it can help to focus thoughts and organize discussions around meaningful elements. Before providing a checklist, an explanation and understanding of the important definitions will help.
Understanding how title is registered and the legal consequences of different title options will help provide for immediate financial needs and the passing of certain property immediately to beneficiaries.
There are 2 broad categories of title registration options: title and beneficiary. The different options discussed below can apply to real estate, bank accounts, life insurance, and investment accounts as well as other assets. Most of these title registration options do not apply to IRAs, 401(k)’s or other tax qualified accounts because these are always registered and titled in the name of an individual person. Also the title registration should not be confused with the beneficiary designation. Some assets allow the use of designated beneficiaries to receive the asset upon the death of all title owners.
The first title option we will discuss is joint tenants with right of survivorship. This title registration is common between 2 or more owners who have an equal and undivided interest. The unique feature of this option is that the title of the asset becomes immediately owned by the survivor when the other title owner dies. The title is owned by the survivor without taking any steps in probate or preparing additional deeds even though (legally speaking) title must be “cleared” prior to any transfer or sale. This is usually done by providing a certified copy of a death certificate. Commonly, this designation will be abbreviated with the letters JTWROS. But remember, when there is only one survivor left on a JTWROS title, the property will pass through probate when that survivor dies.
The next title registration option is tenants in common, or commonly short handed with the letters TIC. The unique aspect of tenants in common ownership is that each person who is named on the title owns a vested portion of the title which does not end after death. This means that each tenant on the title can transfer their portion of property or their percentage to a new tenant without permission of the other original tenants. Each tenant’s interest is therefor subject to passing through probate upon incapacity or death.
Community property is only available in certain states. Arizona is one of them and recognizes that married couples may own property as community owners. All property acquired during marriage is presumed to be community property. The main exception to this is that any property acquired during the marriage by gift or inheritance is the sole and separate property of that spouse. Each spouse owns an equal undivided interest in community property regardless of which spouse actually made the economic payment for the property. Arizona also recognizes community property with right of survivorship, or CPWROS. This is similar to joint tenants with right of survivorship because the property passes immediately to the surviving spouse on the deceased spouse’s death, without probate. However one-half of the value of the property will be included in the deceased spouse’s estate for tax purposes.
Beneficiary designations are another form of title registration. Beneficiary designations usually only apply to certain types of financial assets or accounts like life insurance, IRAs, 401(k)’s, annuities, other retirement accounts, and transfer on death accounts. The beneficiary is named on a form provided by the financial institution – not named in the person’s last will and testament. If a beneficiary is left blank, then usually the account will pass to the decedent’s estate and go through the probate system. When a beneficiary is properly named, the account or financial asset passes to the named beneficiary immediately upon death and outside of probate. The account is still included in the decedent’s estate for estate tax purposes however. A critical point with beneficiary designations is to review them often because they are often not revocable by other documents such as a divorce decree, will, trust or other contract. This means that a financial advisor should be in touch with clients to review the beneficiary frequently.
The only other major title registration option that is used frequently is to title the asset in trust. With a properly drafted trust, the asset will avoid probate and pass to the trust beneficiaries.
Now on to the checklist: an executor or a successor trustee has certain fiduciary duties to manage the estate or trust assets, to prevent their waste and to ensure their proper distribution according to the decedent’s wishes or applicable laws. The three major steps of managing affairs after a death in the family are to: 1) gather the estate or trust assets, 2) pay all debts and taxes, and 3) distribute the estate to the beneficiaries. Get the entire step-by-step process of administering a probate by just entering your first name and email below.
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