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How an asset’s ownership type affects an estate’s distribution

When estate planning, it is essential to consider the various forms of ownership and how they may influence the transfer of assets upon your death. This is because your choice of ownership can have significant tax implications and affect the ease, timing and privacy of asset transfer upon your death.

Here are some common ownership types and their impact on estate distribution:

Sole ownership

If you solely own an asset, it is generally part of your estate. Consequently, your estate’s personal representative will distribute it according to your will, or if you have no will, your state’s intestacy law. Assets of this type go through probate, the legal process of transferring a deceased person’s properties to their rightful heirs.

Joint tenancy with right of survivorship

When you jointly own an asset with two or more people, your shares will automatically transfer to the surviving co-owners upon your death and vice versa. This transfer occurs outside of probate and the terms of the will do not apply to these assets.

Tenancy by the entirety

This type of ownership is similar to joint tenancy with right of survivorship but is exclusively for married couples. If you are married and pass away before your spouse, they will automatically become the sole owner of assets owned as tenants by the entirety. This ownership type also bypasses the probate process.

Properties with beneficiary designations

Assets with beneficiary designations, such as life insurance policies, retirement accounts and payable on death or transfer on death accounts, allow your beneficiaries to receive assets directly upon your death, avoiding probate.

Furthermore, the terms of a trust agreement control assets held in a trust for its beneficiaries. You can design a trust to distribute assets before or after your death, potentially avoiding probate and providing more control over when and how your assets are distributed.

Understanding the relation between ownership types and estate administration helps you make informed decisions when estate planning, especially considering the implications of each type of ownership. It is often advisable to consult with an estate planning attorney to ensure your personal representative distributes your assets according to your wishes.