Practical Precautions When Using Payable-on-Death Accounts
Payable-on-death accounts are commonly used assets that many people choose to include in their estate plans. Payable-on-death accounts include bank accounts, investment accounts, and other financial assets that allow you to name the beneficiary who will inherit the account upon your death. Unlike accounts that do not have a payable-on-death beneficiary, these types of assets do not have to go through the probate process.
However, while payable-on-death accounts do have the obvious benefit of avoiding probate, there are some significant issues you need to be aware of before you choose to include them in your plan. Here are some practical precautions you should take when including payable-on-death accounts in your estate plan.
Be clear what effect your payable-on-death account will have on your overall inheritance plan
Many people use payable-on-death accounts because they are easy to set up, easy to manage, and easy to transfer. However, you have to use these accounts in light of the other inheritance planning choices you make. Failing to do so can cause an unexpected iniquity.
For example, let’s say that you have three children. In your estate plan, you decide to divide your estate equally between each of those three children. However, you also decide that you will want one of your children to serve as the executor of your estate, and plan on transferring that child the funds in a payable-on-death account in order for the child to use them during the estate settlement process. You do this by naming a child as the beneficiary of the payable-on-death account.
When it comes to distributing your inheritances, this choice will naturally lead to an imbalance. Even if the imbalance is only slight, any perceived imbalance can easily lead to family conflicts. Not only that, if the account holds significant funds, the transfer can lead to a significantly different inheritance planning result than you had originally intended.
Make sure you are clear about how your estate will pay debts
In some situations, leaving a payable-on-death account can complicate the estate settlement process if your estate doesn’t have enough money to pay back any leftover debt. If, for example, your estate administrator has to pay taxes, debts, or other estate expenses in there aren’t enough funds available, the administrator might have to try to bring the payable-on-death account assets back into the estate. This can often be time-consuming and expensive, further adding to the costs associated with settling the estate. However, with proper planning, you can use a payable-on-death account to ensure that the executor will have enough funds available to easily pay off estate debts without undue delay.
Further Understanding Estate Planning
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