Your friendly banker suggests that you change all your accounts to either joint with your kids or to name your kids as beneficiaries on all your accounts (a “pay on death” beneficiary designation).  He says this will make the administration of your estate when you die easier for everyone and avoid probate. Is this right? Is this best? The answer depends very much on each person’s situation, and such changes should not be made without discussing them with your estate planning attorney.

All too often, the well-meaning banker does not have all the facts necessary to help you decide whether a change in title to your accounts would be beneficial. Assets that pass through a joint account or any account with a designated beneficiary are not controlled by your Will or Trust. These assets pass automatically upon your death to the named co-owners or beneficiaries. This can have disastrous, unintended consequences and potentially destroy your carefully thought-out estate plan.

For example, Frank is a widower and has three adult children, Frank Jr., Steve, and Susan. Frank Jr. is financially responsible.  Steve has trouble managing money and is constantly falling into debt. Susan is disabled and receives government benefits.

Frank’s Will provides that, upon his death, his assets will be split into three equal shares, one for each of his children. Frank Jr’s share is to be distributed to him outright. Steve’s share is to be held in a creditor protection trust for his benefit, with a responsible trustee to make investment and distribution decisions. Susan’s share is to be held in a supplemental needs trust so that her inheritance will not disqualify her from receiving public benefits.

Frank visits his bank one day and the banker suggests he make all his accounts pay on death to the three children equally. This sounds like a good idea to Frank, but he wisely calls his estate planning lawyer to be sure. The lawyer advises him not to name the children as beneficiaries because Frank wants the accounts to be paid to children as set forth in the estate plan. Frank leaves the accounts as is.

Had Frank followed the banker’s suggestion, Frank Jr. would have received one-third of the accounts outright, which would have been fine. But Steve’s share would go outright to him and not into a trust, with potentially poor outcomes for Steve and clearly frustrating Frank’s wishes.  Worse yet, Susan’s share would also pass outright to her rather than passing to a supplemental needs trust, thereby negatively affecting her eligibility to receive the government benefits she really needs.

After further consideration, Frank decides he wants to (1) avoid probate and (2) ensure his estate is distributed per his wishes for the benefit of each child. He calls the lawyer and agrees that a Trust makes sense as use of a revocable Trust can accomplish both his goals.  Frank meets with the lawyer and executes his revocable Trust which has the same testamentary terms as his original Will. He then goes back to the bank and names the Trust as the “pay on death” beneficiary to his bank accounts. Now, Frank’s bank accounts pass outside of probate and the monies will ultimately be distributed to or for the benefit each of Frank’s children, as set forth in the Trust.

Bottom line: Carefully consider any beneficiary designations and changes to accounts and discuss the effects of such changes with your estate planning lawyer before making any change. Your banker’s advice could unknowingly frustrate your carefully crafted estate plan.

-Stephanie A. Bivens, Esq., CELA

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as offering legal advice or creating an attorney client relationship between the reader and the firm or author. You should not act or refrain from acting on the basis of any content included in this article without seeking appropriate legal advice about your individual facts and circumstances from an attorney licensed in your state. Bivens and Associates, P.L.L.C. expressly disclaims all liability with respect to actions taken or not taken based on any or all information contained in this article.