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CAUTION: Joint Ownership & POD Accounts May Avoid Probate, But There Are Serious Drawbacks

By February 18, 2012Estate Planning

There are two common and simple ways to avoid probate - using joint accounts and using payable on death accounts (POD).

Joint Accounts

If an account is owned jointly in the names of two or more people and it's designated "with rights of survivorship," then when one account owner dies, the surviving owners will simply continue to own the account. Probate on this type of joint account simply won't be necessary because the surviving owners will be able to remove the deceased owner's name by showing the bank or investment company a death certificate. There are, however, several drawbacks to using this type of account:

Ÿ Gifting problems - If the original account owner adds new owners and the new owners don't contribute any money into the account, the original owner may be deemed to have made a gift of a portion of the account to the new owners for gift tax purposes. If the gift amount exceeds the annual exclusion from gift taxes (currently $13,000 for 2012), then the gift must be reported to the IRS on a gift tax return.

Ÿ Lawsuits against joint owners - If one of the owners of a jointly owned account is sued, then the funds in the joint account may become subject to a judgment lien. This could wipe out some or possibly all of the account.

Ÿ Guardianship or conservatorship for minor owners - If the joint owner is a minor, then a court-supervised guardianship or conservatorship will need to be established in order for the account to be used for the minor's benefit.

POD, TOD, ITF and Totten Trust Accounts

Many states have laws that allow you to designate a beneficiary of your bank and investment accounts or individual stock certificates after you die. U.S. savings bonds can also have a payable on death beneficiary. This is another easy way to avoid probate, since all that the beneficiary will need to do is show the bank or investment company a death certificate in order to access the account. As with joint accounts, however, there are several drawbacks to using POD, TOD, ITF or Totten trust accounts:

Ÿ Death of a beneficiary - If there is only one beneficiary designated and he or she predeceases the account owner and the account owner fails to add a new beneficiary prior to his or her death, then the account will become a part of the owner's estate and need to go through probate.

Ÿ Consent of beneficiaries - If the account owner later decides to transfer the account into his or her Revocable Living Trust or wants to make other changes to the account, some financial institutions may require the consent of the designated beneficiaries to make the requested change.

Please see one of our estate planning attorneys who would be happy to discuss estate planning alternatives that will avoid probate without these unfortunate drawbacks that are associated with joint and payable on death accounts. Call 888.222.1328 today to schedule a free consultation!

Why Choose Morris Hall:
You have a number of options when it comes to estate planning, so why pick Morris Hall? First off, estate planning and asset protection are a very complicated endeavor and you should only trust someone who focuses exclusively on those matters. Also, MH is a proud member of The American Academy of Estate Planning Attorneys (AAEPA) which provides us additional support, advanced training, tools and information that is not available to others - which means that we can better protect your assets and your loved ones. We are one of only two firms in Arizona that belong to the AAEPA and are the only firm in New Mexico that has been granted membership. If you have assets and loved ones that you want to protect, you are in good hands with MH. Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation. 

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