Ownership and Estate Planning

The whole unit on one sheet: ownership forms, Pay on Death (POD) / Transfer on Death (TOD), beneficiary rules, trusts, wills, divorce splits, and charitable vehicles.

The One-Liners That Win Points

• Beneficiary designations override the will for that account (Individual Retirement Account (IRA), 401(k), life insurance, POD/TOD). For an ERISA-governed employer plan, a divorced ex-spouse can still inherit if the beneficiary was never updated, since federal law generally doesn't auto-revoke that designation.
• Avoids probate and avoids estate tax are two different things: JTWROS, POD/TOD, and revocable trusts skip probate but stay in the taxable estate.
• Tenancy by the entirety is the only ownership form with built-in creditor protection (a creditor of just one spouse generally cannot force a sale).
• Community property gets a double step-up in basis: both halves step up at the first spouse's death.
• Irrevocable trust generally removes assets from the taxable estate (unless the grantor retains prohibited powers like income or control) and may provide creditor protection depending on trust terms and state law; a revocable (living) trust does neither, but adds incapacity planning.
• If you see "avoids probate AND reduces estate taxes," the answer is irrevocable trust.
• A will only controls the probate estate; assets with designations or survivorship transfer outside it.
• A Qualified Domestic Relations Order (QDRO) splits qualified employer plans for marital-property, child-support, or alimony rights (typically arising from divorce, but not limited to it); IRAs use a transfer incident to divorce (no QDRO).
• A Donor Advised Fund (DAF) gives the deduction at contribution, not when the grant is later recommended.

Ownership Transfer Methods

• JTWROS: two or more owners, equal undivided shares; survivor takes all by operation of law, bypasses probate. NOT limited to married couples. Selling the whole property needs all owners, but any one owner can transfer their own share alone (severing the joint tenancy for that share).
• Tenants in common (TIC): shares can be unequal (e.g., 60/40); no survivorship, so a deceased owner's share goes through their estate and probate. Each owner can sell independently.
• Tenancy by the entirety: married couples only; survivorship plus creditor protection from one spouse's debts; neither spouse can sell without the other.
• Community property: nine states; property acquired during marriage owned 50/50; the double step-up in basis is unique to it. CPWROS adds automatic survivorship (bypasses probate) on top; NASAA names it specifically.

POD and TOD Designations

• POD = bank accounts (checking, savings, certificates of deposit, money market); TOD = brokerage / securities accounts. Often confused, so lock the split.
• Both transfer directly to named beneficiaries at death and bypass probate.
• Owner keeps full control while alive; the beneficiary has no rights until death and can be changed anytime without the beneficiary's consent.
• Low-cost alternative to a trust, but assets stay in the taxable estate and there is no incapacity or conditional-distribution planning.

Beneficiary Designation

• Primary beneficiary is first in line; the contingent (secondary) receives only if the primary predeceases or disclaims. Name both.
• No surviving beneficiary means the contract/plan/statute controls; that's often (but not always) the estate, going through probate.
• Per stirpes ("by branch"): a deceased beneficiary's share passes down to their descendants (keeps it in the family branch).
• Per capita ("by head"): the deceased's share is redistributed among surviving beneficiaries only. Which one applies by default depends on the account/plan/state law, not a universal rule; elect explicitly if it matters.
• Forms are held by the custodian or plan administrator, not the attorney who drafted the will; updating the will alone does not change the beneficiary.

Trusts and Wills

• Will: goes through probate, becomes public record, can be contested; an executor (personal representative) carries it out. No valid will means intestate succession under state law.
• Trust roles: grantor (settlor) creates and funds it, trustee manages, beneficiary receives.
• Revocable (living) trust: grantor keeps control, avoids probate, adds incapacity planning; stays in the taxable estate, no creditor protection; becomes irrevocable at death.
• Irrevocable trust: grantor gives up control; generally excluded from the taxable estate (unless the grantor retained prohibited powers), may provide asset protection (terms and state law dependent), hard to modify.
• Testamentary trust: created by the will, so it goes through probate (unlike a living trust).
• Bypass (credit shelter / B) trust: funded at the first spouse's death up to the exemption so both spouses' exemptions are used; assets stay out of the surviving spouse's estate. Portability is the alternative (the deceased spouse's executor elects to transfer the unused exemption to the survivor), but a bypass trust also keeps later appreciation out of the survivor's estate.
• Charitable remainder trust (CRT): income to the grantor or another noncharitable beneficiary first, remainder to charity, current income tax deduction; the trust avoids immediate recognition of capital gains on appreciated assets it sells, though later income payments can carry out that accumulated gain.
• Charitable lead trust (CLT): mirror image; income to charity first, remainder to family, reduces gift and estate tax.

Qualified Domestic Relations Order (QDRO)

• A domestic relations order, from a court or an authorized state agency, dividing a qualified employer plan (401(k), 403(b), pension) to satisfy marital-property rights, child support, or alimony (typically arising from a divorce, but not limited to it); lets an alternate payee (spouse, former spouse, child, or other dependent) receive part of the benefits.
• Needed because the Employee Retirement Income Security Act (ERISA) normally bars assigning plan benefits.
• Distributions are exempt from the 10% early withdrawal penalty even if the alternate payee is under age 59 1/2.
• A spouse or former spouse alternate payee pays the income tax and can roll over the distribution into their own IRA to defer it; if the payee is a child or dependent, the plan participant reports the tax instead.
• IRAs do not use QDROs: a transfer incident to divorce moves the assets, no penalty on a direct transfer.

Donor Advised Funds (DAFs)

• Managed by a sponsoring organization; the donor makes an irrevocable contribution and gets an immediate income tax deduction in the year of the gift.
• The sponsoring organization has legal control; the donor only recommends grants over time.
• Donating eligible long-term appreciated securities avoids capital gains tax on the appreciation AND deducts the full fair market value (FMV): a double benefit. Short-term holdings or other ordinary-income property generally get a smaller, basis-limited deduction instead.
• Deduction limits: up to 60% of adjusted gross income (AGI) for cash, up to 30% of AGI for eligible long-term appreciated securities; more favorable than a private foundation. Starting in 2026, a new floor also applies: itemized charitable gifts are deductible only above 0.5% of AGI.
• No minimum annual payout (a private foundation must distribute roughly 5% of non-charitable-use assets each year); grants generally go to IRS-qualified 501(c)(3) public charities.

Top Gotchas

• JTWROS is not marriage-only; the marriage-only survivorship form is tenancy by the entirety.
• Avoiding probate is not avoiding estate tax. POD/TOD, JTWROS, and revocable trusts all keep assets in the taxable estate.
• Which default applies (per stirpes or per capita) depends on the account/plan/state law, not a universal rule; a client who wants a deceased child's share to flow down should explicitly elect per stirpes.
• A testamentary trust does NOT avoid probate because the will creates it.
• The QDRO penalty exception applies only to qualified employer plans, not IRAs.
• DAF deduction lands at contribution, not when the grant is recommended (the "bunching" strategy front-loads deductions in high-income years).

Memory Aid: Reading the Ownership Acronyms

• JTWROS = "Right Of Survivorship" (survivor gets all, avoids probate)
• TIC = "In Common" (your share goes to your estate, requires probate)
• TBE = "By the Entirety" (married only, both must agree, creditor-protected)

One-Breath Recap

Titling drives everything: JTWROS, POD/TOD accounts, and beneficiary designations bypass probate but stay in the taxable estate, and those designations override the will for that account; whether a stale ex-spouse beneficiary still inherits depends on state law (many auto-revoke on divorce) versus ERISA employer plans, which generally don't. Tenancy by the entirety adds creditor protection, and community property earns the double step-up in basis.

On trusts, a revocable living trust avoids probate and plans for incapacity but does not cut estate tax, while an irrevocable trust generally removes assets from the estate and may shield them from creditors (both depend on the grantor giving up prohibited powers and, for creditor protection, on trust terms and state law); a testamentary trust still hits probate because a will creates it.

Round it out with the divorce split (QDRO for employer plans, transfer incident to divorce for IRAs, penalty-free for the spouse alternate payee, taxed to the participant when the payee is a child) and the DAF, where the irrevocable gift earns an immediate deduction and appreciated securities dodge capital gains for a double benefit.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Ownership and Estate Planning unit for the complete lesson.