How asset titles and beneficiaries save your heirs from costly probate

What's in a title? A lot more than people realize when it comes to estate planning, advisers said.

Fewer than half of Americans have any estate planning documents and of those who do have a will or trust, 14% have never updated it and another 13% update only every 10 or more years, according to Trust & Will. That means more than a quarter of people with existing plans are likely carrying stale beneficiary designations, the company said.

Beneficiaries are those you name to receive your assets after death. Naming beneficiaries and properly titling accounts are among the most common estate planning gaps, advisers said. Titling is how assets are owned and controlled during life − jointly with someone else, individually, or in a trust, for example − and can, like designated beneficiaries, determine who receives the asset after death.

Both beneficiary designations and titling can pass an asset outside of probate and a will. So, how an account or property is titled or left to an heir can override what estate documents say. Neglecting these items can impact probate (a potentially lengthy and costly, public court-supervised process to settle an estate), taxes and people you intended to leave assets to, advisers said.

"Titling is the number one thing missed in trying to make sure an estate plan is distributed in the way people intended," said Shannon Stevens, managing director and head office at Hightower Signature Wealth. "It's very, very important to make sure to understand the implications of how assets are titled."

How can improper titling or beneficiary designations hurt?

Incorrect or no beneficiary designations or improper titling can lead to distribution delays, misdirected assets and extra costs, advisers said. Here are some examples:

• Not updating beneficiaries could mean someone you didn't intend to receive your assets could inherit them. For instance, an ex-spouse could inherit an asset instead of the current spouse because the beneficiary designation wasn't updated to reflect a new marriage.
• Naming no beneficiary would force your assets to go to probate, delaying distribution and incurring unnecessary legal fees.
• Listing a minor as a primary beneficiary will result in a court-appointed guardian since minors cannot legally manage assets. That means delays and administrative costs.
• Property such as a bank account that's not titled as "joint tenants with right of survivorship" (JTWROS) or has a designated beneficiary will likely go through probate. This can temporarily leave a surviving spouse without access to funds.
• An asset, such as a large investment account titled JTWROS with a second spouse, would mean that the spouse would receive the account instead of the children the deceased person intended to receive it in the will. "We see that frequently," said Anthony Fittizzi, wealth strategies executive at Bank of America Private Bank. "It could jump over the estate plan."

Doesn't a will determine who gets what asset?

A will does map out how your assets are distributed, but assets based only on a will usually must go through probate, advisers said.

"The goal is to have everything named that you possibly can. and hopefully, the will is just a supporting piece that's there just in case − a supporting role in extreme situations," Stevens said.

It's best to title accounts appropriately and name beneficiaries to all major assets like homes, retirement and investment accounts, and the will can capture anything that's forgotten or less valuable, such as your everyday car or household items, Fittizi said.

Another reason to have a will is if any heirs are minors. Minors can inherit assets but can't legally manage large assets and would require a guardian. This is most efficiently done through a will, Fittizi said. Otherwise, the court will appoint a guardian in a likely costly process.

"So, wills are important so you can appoint the right people, people you know and trust," he said.

How should you title and designate beneficiaries?

The best way to title assets and name beneficiaries depends on how you want your assets to flow, advisers said.

Begin with having basic documents in place, like a will and healthcare and financial powers of attorney, they said.

If you have more complex assets like real estate, business interests or valuable collections and want to avoid probate and keep your estate private, also consider a living trust, a revocable trust that holds any assets you put into it, Stevens said. You maintain control over them while alive, and there are specific instructions on how to distribute them outside of probate when you pass.

From there, people can begin to look at titling assets and designate beneficiaries while also learning how assets pass (through probate or outside of probate) at death and to whom with different titlings and beneficiaries.

For example, joint tenants with rights of survivorship (JTWROS) assets will automatically pass to the joint owner and assets with a designated beneficiary will pass to the person named, in both instances, outside or through probate. However, individually-owned assets without a named beneficiary or assets titled tenancy in common must go through probate and follow the will.

"Look at the difference of ownership and map out your situation," Stevens said. "Do you like the outcome or not? If not, change it."

Once that's done and there's a baseline, she recommends revisiting and updating after a life event, like divorce or marriage, or every year or two, even if there isn't a major life event.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.