“You just met a nice person at a bank, who told you there might be a way to avoid the horrors of probate by titling all of your accounts jointly with one of your children.”
The advice you receive from a well-meaning person at the bank, an online financial website or even or a relative at a family gathering can sometimes be extremely detrimental to your estate plan. Making all your accounts as Transfer on Death (TOD) or Payable on Death (POD) to avoid probate sounds like a simple solution. However, a simple solution does not always work well for a complex matter. That’s the warning from The Mercury in the article “Planning Ahead: Joint Accounts and Transfer on Death can torpedo an estate plan.”
In some states, probate is a complex and expensive problem. However, in others it is simply a court review of the estate to make sure that everything is in correct order. Therefore, avoiding probate should not be the driving force in an estate plan.
Sometimes joint titling and payable on death does work, especially in families where there is only one child or one heir. This is also a good solution, if the POD or joint account owner is your spouse.
However, here is where things get dicey. Let’s say your spouse passes away, and you name one of your children as the joint or payable on death for all accounts. Let’s say you also do that on your real estate properties and other assets and accounts.
How your accounts are titled overrides anything that your will says. If your will directs that all your assets be distributed in equal shares to your children, but your one child has become the legal owner of your assets when you die, you have created the perfect estate litigation storm.
On your death, the adult child becomes the owner, and has no legal obligation to share any of those assets with his or her siblings.
To take the example further, if the child dies shortly after you, then the assets go to his or her spouse. If his or her spouse is not living, then all your assets go to the estate, and not to their siblings as you had intended.
Another issue that is not resolved through titling is the ability for the estate to pay expenses. If son John becomes the owner of all your assets, who is going to pay for inheritance taxes, funeral expenses and other costs associated with settling an estate?
A smarter move than taking a simple piece of advice and trying to apply it to a complex matter: make an appointment with an experienced estate planning attorney in your state and create a plan for how you would like your assets to be distributed upon your death. Plan for expenses that occur, like funeral expenses and inheritance taxes. You can now rest easy, knowing that you’ve just spared your family the divisiveness and stress that can occur from well-intentioned but inappropriate advice.
Reference: The Mercury (Dec. 4, 2018) “Planning Ahead: Joint Accounts and Transfer on Death can torpedo an estate plan”