estate plan

By: Jessica L. Estes

The one thing that can mess up even the best estate plan, is the titling of assets.  I cannot tell you how many times a client will tell me they have the best trust or best will that encompasses everything from tax planning to creditor protection and disability planning for beneficiaries.  For many of them, though, it does not matter how good their documents are if their assets are not titled appropriately.       

Often, clients will add a child or other family member to their account so if something happens, that joint account holder can access the funds to pay bills.  But what are the consequences of having a joint account holder?  First, it is important to understand that a joint account holder is deemed to own 100% of that account, even if they never contribute any money to it.  Not only does this mean they can withdraw all funds without your consent, but it also means that their financial power of attorney can control and/or access your funds.  For example, if your son is joint on your bank account and he gets into a car accident and becomes disabled or requires long-term care, his power of attorney (likely, his spouse if he has one, or if he does not, a court-appointed guardian), might legally be required to use those funds for his benefit.  Even if that does not occur, if your joint account holder files bankruptcy, gets divorced, or gets sued, that account could be garnished or liquidated.  And, finally, when you die, that account will automatically pass to the joint account holder, who is under no legal obligation to distribute it in accordance with your will or trust.  So, what good was that trust or will?

Similarly, if you name a beneficiary on your bank account – usually referred to as “pay on death” or “POD” – that account, upon your death, will automatically pass to your named beneficiary.  Likewise, any beneficiary you designate on an investment account (“transfer of death”, or “TOD”) or a life insurance or annuity policy will also pass upon your death to your named beneficiary.  In these situations, neither your will nor your trust will govern who gets your stuff.

Also, if you have an individual retirement account (“IRA”) with a beneficiary designated, that account will pass upon your death to your named beneficiary.  This could cause any provision in your documents that would allow the beneficiary to stretch-out the payments from the IRA over their lifetime, to be ineffective and require the beneficiary to receive the all funds within five years of your death.

Moreover, if you have an account “in trust for” or “ITF,” that account belongs to the individual for which the funds are in trust.  Because the funds in this account do not belong to you, this account will not be distributed in accordance with your will or trust.  Rather, you should name a custodian to take over the management of the account upon your death. 

And, if you have a trust, it does not mean your assets are now automatically in the trust.  Your assets need to be retitled and the ownership changed to the trust.  This will require action on your part to go to the bank or other financial institution and fill out change of ownership forms to have the account retitled in the name of the trust.  If you fail to transfer the ownership of the assets to the trust, then the trust will not necessarily govern how the assets are distributed upon your death.  Additionally, one of the benefits of a trust is to avoid probate, but if the assets are never transferred to the trust prior to your death, your beneficiaries will first need to go through probate.  

So, review your assets and make sure they are titled in a way that is consistent with your estate plan.