Ownership and Estate Planning Techniques

The whole unit on one sheet: ownership forms, trusts and wills, beneficiary designations, and the tax and probate rules the exam loves.

Which One-Liners Win Points?

• Joint Tenants with Right of Survivorship (JTWROS) passes to survivors automatically and avoids probate; any owner can typically trade in the account, but checks and distributions must be made payable to all owners.
• Tenants in Common (TIC) has NO right of survivorship: a deceased owner's share goes to their estate and requires probate. The deceased owner's will or intestacy laws control it, not the account title.
• Tenancy by the Entirety (TBE) is married couples only, needs both spouses to consent to any transfer, and, where recognized, generally protects against a creditor of only one spouse (state-law exceptions apply).
• Community Property with Right of Survivorship (CPWROS) exists only in community property states and, with a survivorship election, passes to the surviving spouse.
• Revocable living trust: avoids probate, but assets stay in the taxable estate and the grantor pays the income tax; becomes irrevocable at death.
• Irrevocable trust: a completed transfer to a properly structured irrevocable trust may reduce the taxable estate, but the grantor gives up control and retained powers, trust terms, and applicable law control the result; the trust is a separate tax entity.
• Inter vivos (living) trusts avoid probate; testamentary trusts are created by a will and DO go through probate.
• Testate = died with a valid will; intestate = no will, state law controls.
• Beneficiary designations and TOD / pay-on-death (POD) accounts override a will. The exception: on a qualified employer plan, the current spouse has priority over the name on file unless that spouse consented in writing to another beneficiary.
• A qualified domestic relations order (QDRO) divides employer plans (401(k), 403(b), pension) in a divorce and waives the early withdrawal penalty; IRAs use a "transfer incident to divorce" and need no QDRO.
• Donor advised fund (DAF): irrevocable contribution, immediate deduction, then advisory grants; no required payout timeline.

Which Numbers Matter Most?

Which Gotchas Trip Students Up?

• Step-up in basis at death: JTWROS, TIC, and TBE step up only the deceased's share; community property steps up BOTH halves (a double step-up), the key tax edge.
• Revocable vs irrevocable: revocable = probate avoidance only, no tax benefit; irrevocable = grantor gives up control, and a completed transfer to a properly structured irrevocable trust may reduce the taxable estate (retained powers, trust terms, and applicable law control the result).
• Probate avoidance: JTWROS, TBE, CPWROS, living trusts, TOD/POD, and beneficiary-designated assets all skip probate; TIC shares and testamentary trusts do not.
• Per stirpes vs per capita: per stirpes sends a deceased beneficiary's share down to their descendants; per capita redistributes it among the surviving named beneficiaries instead, and that redistributed share does not go to the deceased beneficiary's descendants. Per capita is the usual default.
• Beneficiary designations override the will, so a forgotten ex-spouse on a 401(k) can still inherit, unless the participant has remarried and the current spouse never consented in writing.
• Appreciated securities to a DAF give a double tax benefit: no capital gains tax on the appreciation, plus a deduction at full fair market value.

One-Breath Recap

Titling drives control and inheritance: joint tenants with right of survivorship, tenancy by the entirety, and community property with a survivorship election pass to survivors and skip probate, while tenants in common goes to the estate through probate, and community property alone gets the double step-up in basis. Revocable trusts avoid probate but keep assets in the taxable estate; irrevocable trusts may reduce estate tax and shield assets, depending on retained powers and applicable law, but cost the grantor control. Testamentary trusts still probate; living trusts do not. Beneficiary designations and transfer-on-death accounts override the will, qualified domestic relations orders split employer plans penalty-free in divorce, and donor advised funds trade an irrevocable gift for an immediate deduction and later advisory grants.

Need more than the recap? Read the full Ownership and Estate Planning Techniques unit.