Joint accounts and beneficiary designations can be useful in estate planning.
When you think of estate planning what comes to mind?
You likely think of how it is portrayed in books or films.
A character receives news of the death of a relative and how this character was named in the last will and testament of the dead relative.
Few characters hear they have been the beneficiary of a transfer on death account, life insurance policy, or a retirement account.
According to a recent The Street article titled “Protecting Your Assets: Joint Accounts and Beneficiary Designations,” estate planning is more multidimensional than it appears in media portrayals.
A last will and testament is certainly useful in estate planning.
It directs your assets to beneficiaries through probate proceedings.
If you do not have a last will and testament, your assets may be distributed according to the laws the state rather than according to your wishes.
However, certain assets do not necessarily fall within the governance of your last will and testament.
Some assets pass via beneficiary designations, joint account ownership, or as part of a revocable living trust.
When using beneficiary designations, joint accounts, a last will and testament, and perhaps a revocable living trust in your estate planning, you will want to make sure they work together rather than against each other.
Let us say you are married with several children.
You and your spouse have each executed a last will and testament.
These “mirror image” last wills designate the surviving spouse as the direct heir and leave everything to the children only when there is no surviving spouse.
You also provide the children of any predeceased child share in the inheritance that would have passed to the predeceased child.
This designation is known as “per stirpes.”
As with the last wills, you and your spouse designate one another as the primary beneficiary on any other assest, with your children as contingent beneficiaries.
Although everything seems in order, it could be complicated by other family dynamics.
If the children jointly own an account or the family home, assets could be compromised by lawsuits or divorce.
Could you simply name the responsible and single child as the beneficiary to avoid this problem?
However, you may create other issues.
This child named in the beneficiary designations may not feel the need to share the inheritance with siblings.
Because this child is the legal beneficiary, the siblings and their children could be disinherited.
If you need another situation to convince you of the perils of alternatives to DIY planning with joint accounts and beneficiary designations, try remarriage.
Although you may have good intentions with the use of joint accounts and beneficiary designations, you may unintentionally create greater problems.
Working with an experienced estate planning attorney can help you created an effective and efficient estate plan.
Reference: The Street (Oct. 30, 2020) “Protecting Your Assets: Joint Accounts and Beneficiary Designations”