Account titling and beneficiary designations supersede what clients have written in their wills and should be managed carefully. Inattention to the details can lead to a client's wishes upon death going unfulfilled.
This process applies to accounts and real property. For example, joint tenancy, if one of the joint tenants dies, leaves the account or asset to the other joint tenant.
"The title issue is that it's another non-probate situation where that asset passes, upon death, not through court, not through probate — doesn't matter what the will says," said Rebecca Carter, a principal at Owings Mills, Maryland-based Friedman, Framme & Thrush who manages the firm's LegalShield Department. "If you have a savings account somewhere where you were hoping that money went to Person X, but the other person on it was your ex-husband, it becomes his."
Many elderly parents add adult children to their accounts to avoid probate, but if only one child is added, this could lead to disputes between the siblings, saying, "'Mom didn't really want you to get that whole savings account. You just were on there because you live next door,'" Carter added.
Erin Botsford, who formerly worked as an advisor herself and now trains advisors as founder and CEO of The Advisor Authority, said she once worked with a couple that accidentally disinherited their children, despite what they'd written in their wills. The husband and wife each had two children from previous marriages and gave each other joint tenancy with the right of survivorship, which cut the kids out.
It is important, "between working with a financial planner [and] working with an attorney for the planning, to make sure what your intention is, is what's going to happen," Carter said.
Stephen Dissette, a Trail Creek, Indiana-based registered investment advisor representative of Horter Investment Management, also recommended working with an attorney.
"It can get a little complicated in today's world because I see a lot of second, third marriages and a lot of children that they want kept separate," he said. "That can all be done, but I think the best thing is to get an attorney involved, an estate planning attorney, to help with that. You might pay a little bit to do that, but the savings … financially and family issues, wow — well worth it."
Other titling mistakes
There are other mistakes clients can make with account titling that can cause problems after death. For example, clients might set up a trust and intend to put assets into it but not actually put them there.
Creating a pour-over will can help with this type of situation, said Kristin Yokomoto, Newport Beach, California-based partner at FBT Gibbons who focuses on wealth planning and family office services. Pour-over wills automatically transfer remaining assets to the trust after the person's death.
"You need to make sure your beneficiaries are correct, your tiling of your assets are correct, because you're going to put all this time, money, effort and thought — and anxiety — into preparing your will, preparing your trust, and the last thing you want is some kind of technicality that would have been so simple to fix," Yokomoto said. "It's usually a form or a deed to make a mess, and if you have children from different marriages or different beneficiaries, charitable beneficiaries, it's just going to cause a fight."
