In this episode of Protecting and Preserving Wealth, we move to topic 3 in our estate planning series by tackling a critical but often overlooked topic—how to properly title assets. Previously, we discussed beneficiary designations, but today, we dive into why the way assets are titled can significantly impact taxes, probate, and the distribution of wealth.

One common issue we see is with married couples who assume their assets should always be jointly owned. While joint ownership works in many cases, certain assets, like IRAs, must remain in an individual's name. Instead of joint ownership, the key is to designate the spouse as the primary beneficiary, allowing them to roll over the IRA upon death while maintaining tax benefits.

Another crucial factor is understanding community property laws. Arizona, along with eight other states, offers unique tax advantages through community property rules. If a couple holds a property as joint tenants instead of in a community property trust, they may only receive a partial step-up in basis upon the first spouse’s passing. This could lead to significant capital gains taxes if the surviving spouse sells the home. By properly titling the property, they can eliminate unnecessary tax burdens.

We also discuss the importance of utilizing trusts. While some attorneys argue that trusts are unnecessary for estates below the federal estate tax threshold ($13.6 million per person), we believe that avoiding probate and ensuring a full step-up in cost basis outweighs any minor costs involved in setting up a trust. Trusts also provide a streamlined way to manage multiple financial accounts and ensure consistent distribution to heirs.

Improper titling is a common mistake, particularly with joint brokerage accounts. If a highly appreciated investment portfolio is held jointly, the surviving spouse only receives a half step-up in basis rather than a full step-up. This can be avoided by transferring the account into a trust. We frequently guide clients through these changes, ensuring their financial plans align with their long-term goals.

Of course, not all assets belong in a trust. Cars, for example, are best kept in an individual’s name to simplify insurance and liability issues. For day-to-day checking accounts, adding a "payable on death" (POD) or "transfer on death" (TOD) designation is often sufficient. Even the DMV now allows for beneficiary designations on vehicle titles, making it easier to pass on assets without probate.

On the other hand, primary residences, rental properties, business ownership interests, and taxable investment accounts should generally be titled in a trust. This ensures that upon death, these assets pass seamlessly to heirs without court intervention. For business owners, holding an LLC in a trust is an effective way to protect the business’s value and avoid unnecessary taxes for the surviving spouse.

Personal assets like collectibles, gold, firearms, and artwork can also be included in a trust. If these items hold significant value, listing them in trust schedules ensures they go to the intended beneficiaries without legal complications. We even assist clients in setting up specialized trusts, such as gun trusts, for properly transferring firearms.

Ultimately, proper titling and estate planning can prevent costly mistakes and unnecessary stress for heirs. If you're unsure whether your assets are structured correctly, it’s never too late to make adjustments. At Hosler Wealth Management, we work closely with attorneys to ensure trusts are properly funded and structured for maximum benefit.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/

Or call them in their Prescott office at (928) 778-7666 or their Scottsdale office at (480) 994-7342.

For more podcast episodes, visit our podcast website at https://hoslerwm.com/protectingwealthpodcast/

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