4 Considerations When Titling Assets

March 8, 2024
Proper asset titling is critical to any good estate plan—but be sure you understand the ramifications before making changes.

Wills and trusts are often viewed as the pillars of any good estate plan, but asset titling—or the way you own an asset (individually, jointly, etc.)—is just as critical.

"As with a trust, most titled assets aren't subject to probate, the legal process of validating your will and distributing your assets," says Austin Jarvis, director of estate, trust, and high-net-worth tax at the Schwab Center for Financial Research. "Plus, changing a title is generally far less expensive than setting up a trust."

That said, estate owners should ensure all titling is consistent with their larger estate-planning goals. "Conflicting instructions or improper titling can create unintended consequences for your heirs," Austin cautions.

Here are four considerations to keep in mind when incorporating asset titling into your plan.

  • Titling typically supersedes a will: "Say you stipulate in your will that your family's longtime vacation home be split among your children from a previous marriage," Austin says. "If the property is titled with your current spouse and includes rights of survivorship, that person would take full ownership of the property upon your death irrespective of the instructions in your will."
  • Jointly titled assets transfer immediately: A trust or probate pays beneficiaries only after all expenses and taxes are paid, whereas jointly titled assets transfer to beneficiaries immediately. "This is a boon for heirs but can create liquidity issues when it comes to settling estate costs," Austin says. "If that's a concern, consider setting aside funds to cover such expenses."
  • Beware jointly titling assets with an heir: Generally speaking, assets you own at death receive a step-up in cost basis, meaning any future gains are determined by the value on the date of death rather than the date of purchase. However, if you jointly title a property with an heir, only your portion—rather than the entire asset—receives the step-up in value, potentially exposing your heir to greater capital gains taxes should they eventually sell. "In this case, it's probably better to title the property in the name of a revocable trust and name a beneficiary so the entirety of the asset receives the step-up in basis," Austin says.
  • Proper titling can help shield your spouse from capital gains taxes: If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, all community property with right of survivorship is eligible for a 100% step-up in cost basis when one spouse passes away. That means the entire cost basis of the asset—not just your half—resets to the value on the day of death, and any future gains will be determined using the new cost basis.

"Given varying state laws and the many considerations that go into proper titling, it's essential to work with a seasoned advisor or estate-planning attorney to help ensure your assets will transfer as intended and accomplish your estate goals," Austin says.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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