What is "Direct Transfer Ownership" in Maryland Law?

Introduction: Essentials of Direct Transfer Ownership

Recently, we’ve covered the topic of “titling” property in the context of estate planning. As we’ve discussed, holding specific types of title in property has ramifications in estate planning, and so Marylanders need to know about the various types of titles which can be used. One form of ownership which we haven’t referenced or discussed specifically yet is something called “direct transfer ownership.” In current Maryland law, there are three subtypes of direct transfer ownership. Any Marylanders who are concerned about their estate planning should familiarize themselves with these three subtypes.

Beneficiary Designations

The first subtype of direct transfer ownership is “beneficiary designation.” In Maryland, a person can fill out a beneficiary designation form to transfer ownership (or “title”) of property to someone directly after death; by filling out this form, and passing ownership in this way, the decedent is able to avoid probate altogether, thereby simplifying the process greatly. Typically, beneficiary designations are used for life insurance policies, retirement accounts, annuities, and mutual funds. The beneficiary in this scenario has no right to use the identified property during the owner’s lifetime.

Payable / Transfer on Death Accounts

Another subtype of direct transfer ownership is known as “payable on death” accounts (or “transfer on death”). In most ways, these accounts are virtually indistinguishable in function from beneficiary designations: like beneficiary designations, payable and transfer on death accounts are not usable during the lifetime of the original owner; and, these accounts enable the designated property to bypass probate altogether and transfer directly to beneficiaries. Typically, accounts are used for checking and savings accounts, and also brokerage and corporate stock accounts.

Revocable / Irrevocable Trusts

Lastly, revocable and irrevocable trusts also fall under the category of direct transfer ownership. We’ve discussed trusts to some degree previously on our blog: trusts are established by a trustor, managed by a trustee, and transfer specific property to identified beneficiaries. As with these other direct transfer devices, trusts enable the trustor to avoid probate and distribute property to beneficiaries smoothly. However, trusts can also be tailored to suit all sorts of particular needs; in some cases, a beneficiary receives distributions during the lifetime of the trustor, but some trusts distribute assets solely after the death of the trustor.

Revocable and irrevocable trusts share the same basic purposes, but differ in certain critical ways. The most critical distinction is that revocable trusts are not able to be unilaterally dismantled by the trustor; irrevocable trusts are considered independent entities from a legal-tax standpoint, and so they are actually “separate” from the trustor. Revocable trusts may be unilaterally collapsed, and they are technically considered to be part of the trustor’s estate for tax purposes.

If you’re concerned with estate planning matters, and if you’re wondering about how to avoid the probate process, it is highly beneficial to know the fundaments of direct transfer vehicles.

Contact the Murphy Law Firm for Additional Resources

If readers would like more information on direct transfer ownership vehicles, trusts, or another estate planning topic, contact one of the estate planning attorneys at the Murphy Law Firm today by calling 240-219-5243.

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