Joint accounts can sometimes be a problem for your estate.
Making all of your accounts as Transfer on Death (TOD) or Payable on Death (POD) sounds like a simple solution in avoiding probate. However, sometimes it can become a complex problem, according to The Mercury in “Planning Ahead: Joint Accounts and Transfer on Death can torpedo an estate plan.”
In some states, probate is a complex and expensive problem. California is one of those states, having arguably the worst probate process in the country. Many people use TOD or POD designations to avoid probate, but don’t realize they’re creating additional problems, even though they’ve managed to skip probate.
Sometimes joint titling and payable on death does work, especially in families where there is only one child or one heir. This can be 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 or trust says. If your will or trust 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.
This can also be a huge problem for blended families where there are step children involved. Leaving everything to your spouse might cause your children to be left out entirely from your estate.
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 any taxes, funeral expenses and other costs associated with settling an estate?
When it comes to real estate, things get even trickier. Imagine that you’ve added your son and daughter-in-law as joint tenants to your house, because you want to make sure the house doesn’t go through probate. Now, a few years later, your son and daughter-in-law are getting a divorce. She’s on the deed for your house, so all of a sudden your house becomes involved in their divorce proceeding!
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 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 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”