Individuals establishing or updating estate plans often have specific goals they want to achieve. Keeping assets out of probate is a popular estate planning goal. People want to avoid scenarios where their loved ones can’t access resources for months. They don’t want creditors to make claims against their resources or for their assets to trigger estate taxes.
Keeping certain resources out of probate court can help accomplish all of those goals. When a testator has valuable financial accounts, there is a simple means of helping them bypass probate proceedings. Account owners can file transfer-on-death designations with their financial institutions. A selected beneficiary can take control of a checking, savings, investment or retirement account after the current owner dies. There are both benefits and drawbacks to using transfer-on-death or payable-on-death designations for accounts.
What are the benefits?
As outlined above, transfer-on-death designations can keep financial resources out of probate court. The beneficiary named in the paperwork can take a copy of the death certificate and their state-issued identification to the financial institution. They can then become the new owner of the account.
The resources held in the account are typically not vulnerable to creditor claims in probate court. Keeping the account separate from the estate can also limit the overall value of the estate. That can reduce or eliminate estate tax obligations.
Beneficiaries can potentially gain access to financial resources within a matter of days in some cases, which is much faster than waiting for the completion of probate proceedings. Testators can feel confident that the right person receives their financial resources after their passing.
What are the drawbacks?
There are certain risks involved in using transfer-on-death designations for financial accounts. Although it is rare, there might be reason to worry about fraud. People can falsify state identification and death certificates, although doing so is a crime.
Additionally, there is reason to worry about the designations filed with financial institutions becoming outdated. Divorce, the death of a beneficiary or even changing relationships may lead to an account holder wanting someone else to inherit the account.
If they make the mistake of addressing that preference in a will without updating the paperwork filed with the financial institution, the wrong person may ultimately inherit the account. People updating their estate plans often forget outside documents not directly managed by their estate planning attorneys.
Reviewing every different option for achieving personal estate planning goals can help people leave a legacy that affects their loved ones positively. Transfer-on-death account designations can be beneficial for many people if they keep their account information up to date.