JOINT OWNERSHIP / BENEFICIARY DESIGNATIONS - BUT, WHAT IF?

Part 2 in our continuing series on the viral social media post


by Jennifer Tomac


One of the tips the viral social media post shares is to add joint ownership or beneficiaries to your accounts. This article discusses why that might not work for you.


A good estate plan is about so much more than who gets your stuff/money when you die.


A good estate plan acknowledges that none of us knows what the future holds. We don’t know when we will die. We don’t know if we will have dementia for years before we die. We don’t know if (heaven forbid) one of our kids might die before us. We don’t know if our adult children will get married and/or divorced. We don’t know if one (or more) of our children might become disabled during their lifetime.


A good estate plan lets you sleep better at night knowing that you understand the rules of the game and have created a plan that will provide for you and your family no matter what.


Why joint ownership/beneficiary designations may not be the right answer:


1. A good estate plan gives a trusted family member or friend legal access to your bank accounts if you are incapacitated – without the risks associated with adding that person’s name to your accounts.


If you add your adult daughter’s name to your bank account so that she can have access to the money to help you pay your bills and then 3 years later your daughter gets a divorce, the money in your bank account will be an asset that gets divided up during your daughter’s divorce because by adding her name to your account you made it so that the money in the account belongs to her as much as it belongs to you.


You may have seen this post shared on social media recently.

If instead of adding your daughter’s name to the account, you simply list your daughter as the beneficiary of your bank account, you will avoid the unintended result discussed above. However, then you have another problem. Naming your daughter as beneficiary only ensures that the money in the account will belong to your daughter after you die, it does not give your daughter access to the account to help pay your bills if/when you become incapacitated.


The best solution is either a Trust or a Will and carefully drafted Power of Attorney


2. A good estate plan gives a trusted family member or friend the legal authority to sell your house in order to provide for your care as you age – without the risks associated with making that person a joint owner of your house.


If you add your adult son’s name to your house deed so that the house won’t have to go through probate when you die and then 2 years later your son is in a horrible car accident and gets sued, your home will be viewed as an asset of your son that must to sold to satisfy any judgement(s) against him because by adding his name to your deed you made it so that the home belongs to him as much as it belongs to you.


If, instead of adding your son to the title of your home, you simply sign a Transfer on Death Deed, you will avoid the unintended result discussed above. However, then you have another problem. The transfer on death deed (which is an option in about 29 states) only ensures that the house will belong to your son after you die, it does not give your son legal authority to sell/rent out the house if/when you become incapacitated.


The best solution is either a Trust or a Will and carefully drafted Power of Attorney


3. A good estate plan has built-in contingencies that provide a plan for what happens if, when you pass away, one of your beneficiaries is disabled or under the age of 18.


You don’t think you need a will/trust because you’ve named your three adult children – Larry, Curly, and Moe – as equal beneficiaries of your life insurance policy and retirement accounts. None of them are disabled and they are all over the age of 18. Unfortunately, 6 months before you pass away, Larry and Moe are in a car accident together. Larry dies from his injuries and Moe’s injuries will prevent him from being able to work so he applies for disability benefits.

As a result, when you die, Larry’s 1/3 of your life insurance and retirement accounts are payable to his children, who are 14 and 12. The life insurance and retirement companies won’t distribute the kids’ monies until someone hires an attorney and goes before a judge to be appointed as the guardian of the kids’ monies. Depending on what state the kids live in, neither they nor their living parent will be able to use this money until they kids are 18.


Additionally, after Moe receives his 1/3 of the life insurance and retirement accounts, he loses the disability benefits he just spent a year applying for because now he has “too much money.”


A properly drafted Trust could have avoided all of the undesirable result discussed above.


It's important that you consider speaking with an experienced Estate Planning attorney before making any decisions. Tomac & Tomac offers complimentary meetings to discuss your needs.



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