Property Titling and Beneficiary Designations

How you title property is one of the most critical yet often overlooked aspects of estate planning. Property titling directly determines who owns an asset, how it transfers at death, whether it passes through probate, how it is taxed in the estate, and what cost basis beneficiaries receive. For the CFP exam, understanding the distinctions between various forms of property ownership is essential.

The Four Primary Forms of Property Ownership

1. Joint Tenancy with Right of Survivorship (JTWROS)

Joint tenancy with right of survivorship is a form of co-ownership where two or more individuals hold equal, undivided interests in property. The defining characteristic is the right of survivorship--when one joint tenant dies, their interest automatically transfers to the surviving joint tenant(s), bypassing probate entirely.

The Four Unities Requirement: A valid JTWROS must satisfy the "Four Unities":

• Unity of Time: All joint tenants must acquire their interest at the same time
• Unity of Title: All must receive ownership through the same deed or instrument
• Unity of Interest: Each must hold an equal, undivided share
• Unity of Possession: Each has equal right to possess the entire property

Key Characteristics:

• Passes outside probate directly to surviving owner(s)
• Available to any co-owners (spouses, relatives, friends, business partners)
• Any joint tenant can unilaterally sever the joint tenancy by transferring their interest
• Upon severance, the ownership converts to tenancy in common

Estate Tax and Basis Considerations:

• For spouses: One-half of the property value is included in the deceased spouse's gross estate, and the surviving spouse receives a step-up in basis on only that half
• For non-spouses: The portion included in the estate depends on contribution--if the decedent contributed 100% of the purchase price, 100% is included and receives a full step-up

2. Tenants in Common (TIC)

Tenancy in common is a flexible form of co-ownership that allows unequal shares and has no right of survivorship. Each tenant holds a distinct, transferable interest that becomes part of their estate upon death.

Key Characteristics:

• Owners may hold unequal shares (e.g., 60%/40%, or 50%/25%/25%)
• Interests can be acquired at different times and through different instruments
• Each owner can independently sell, gift, or bequeath their share
• No automatic transfer at death--interest passes through the owner's estate
• Subject to probate unless held in a trust

When TIC is Preferred:

• Business partners who want their share to pass to their own heirs
• Unmarried co-owners who want control over their share
• Family members planning for unequal distributions
• Real estate investors seeking flexibility

3. Tenancy by the Entirety (TBE)

Tenancy by the entirety is a special form of joint ownership available only to married couples in states that recognize it. It provides the same survivorship rights as JTWROS but adds significant creditor protection.

Creditor Protection Features:

• Creditors of only one spouse cannot attach or force sale of TBE property
• Only creditors with judgments against both spouses can reach TBE assets
• Protection extends to tax liens (with limited exceptions for federal tax liens under the Supreme Court's decision in United States v. Craft)
• Property becomes vulnerable to creditors only upon divorce or death

State Recognition (approximately 25 states plus D.C.):

• Full protection states: Creditor of one spouse has no rights in property
• Modified bar states: Creditor may have limited rights but must respect the non-debtor spouse's interest
• Some states limit TBE to real property only; others extend it to personal property including bank accounts

Key CFP Exam Point: TBE is an excellent asset protection tool for married couples in states that recognize it, but the protection ends upon divorce or the death of the non-debtor spouse.

4. Community Property

Community property is a marital property system recognized in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Five Additional Elective (Opt-In) States:

• Alaska (since 1998): Allows opt-in via community property agreement or trust
• Tennessee (since 2010): Allows community property trusts
• South Dakota: Allows opt-in community property
• Kentucky (since 2020): Allows community property trusts
• Florida (since 2021): Allows community property trusts

How Community Property Works:

• Property acquired during marriage is presumed to be owned 50/50 by each spouse
• Each spouse can dispose of their 50% share by will
• Does NOT automatically include right of survivorship (must be specifically designated as "community property with right of survivorship")
• Separate property (owned before marriage or received by gift/inheritance) remains separate

Major Tax Advantage--Full Step-Up in Basis: Under IRC Section 1014(b)(6), both halves of community property receive a step-up in basis at the first spouse's death. This is a significant advantage over JTWROS, where only the deceased spouse's half receives a step-up.

Example: Spouses purchased stock for $100,000 that is now worth $500,000.

• If held as JTWROS: Surviving spouse's basis = $50,000 (carryover on their half) + $250,000 (step-up on deceased's half) = $300,000
• If held as community property: Surviving spouse's basis = $500,000 (full step-up on both halves)

Comparison Table: Property Ownership Types

Planning Considerations for CFP Candidates

Probate Avoidance

JTWROS and TBE automatically avoid probate through survivorship rights. Community property avoids probate only if held with right of survivorship (CPWROS). TIC always requires probate unless transferred to a trust.

Estate Tax Inclusion

For married couples, 50% of jointly held or community property is included in the first spouse's estate regardless of who contributed to the purchase. For non-spousal joint tenants, the full contribution rule applies--the portion the decedent contributed is included in their estate.

Step-Up in Basis Planning

The full step-up available for community property makes it advantageous for appreciated assets. In common law states, couples with appreciated assets may consider establishing a community property trust in an elective state (Alaska, Tennessee, etc.) to obtain the full step-up benefit.

Asset Protection Considerations

For married couples concerned about creditors, TBE (where available) provides the strongest protection. Converting assets to TBE before claims arise is a proactive planning strategy.