Estate planning experts say that although adding a loved one to a bank account may seem like an efficient way to pass the associated assets forward when we die, doing so can actually lead to difficulties. Here’s why, along with helpful advice about better ways to plan for our assets.
Unintended Consequences
Adding an adult child to a bank account is free and simple to do, leading us to believe that our affairs will be easy for our families to handle when we die, since the funds in the account are directly and immediately accessible to the joint account holder. What’s not to like? Actually, a good bit, say experts at Sands Anderson:
By making someone a joint owner, you have in essence made a gift to them of the entire value of that account. That means that if there is a wolf at the door for your joint owner, that wolf is going to be able to come after your joint account.If your joint owner gets in legal trouble, is sued, or goes bankrupt, among many other potential hazards, there is a very real possibility that the creditor will be able to garnish that joint bank account — even though you yourself had absolutely nothing to do with the problem! There may be defenses you can raise, but it’s a bitter pill to have to spend thousands of dollars defending yourself in court against something that you didn’t do.
In addition to exposing assets in a joint account to the troubles that could befall an adult child or other loved one named on the account, there are several more complications that can result in the unintended disposition of the assets in the account. For starters, upon death, the account immediately belongs to whomever is named as a joint owner. Naturally, this can set up challenges for other beneficiaries we intend to include in asset distribution. Legal experts point out that there is always the possibility that a joint account holder dies before we do, which can result in the account getting tied up in probate proceedings.
To avoid the unintended consequences of joint accounts, estate planners advise executing a Power of Attorney: “a brief, straightforward legal document that gives another person the authority to take legal and financial actions in your name, including accessing your accounts if necessary.” Since a person acting as a Power of Attorney is not an account owner, the complications stemming from joint ownership are avoided.
Establish A Revocable Living Trust
The experts at Sands Anderson also advise that establishing a revocable living trust can be an important choice during estate planning. Trusts allow for the easy transfer of assets to beneficiaries named in a trust agreement, since assets placed in a trust do not go through the probate process. Additionally, trusts can be set up to attend to a variety of life circumstances including both our own, and the care of loved ones with special needs. Working with a lawyer to set up a revocable living trust can be a smart way to plan for our own needs as we age, and to ensure a smooth and timely distribution of assets to loved ones when we die. As Wilson Law Group sums up: A revocable living trust contains money and property that you transfer into it, and you choose a person (the trustee) to manage it for your benefit while you are still alive. You can set up a living trust in such a way that it can be changed or revoked except when you do not have the mental ability to do so or have passed away. A living trust can also specify the distribution of the money and property when you die.
Once the trust documents are signed, remember, to complete the process by actually transferring designated assets into the trust. Until assets are transferred into a trust, it has no value. There’s not one “magic wand” that can just wave a diversity of assets into the account, so it’s important to follow up on the specific documentation needed to transfer each asset into the trust. Kiplinger explains:
Many people assume that once they sign the trust documents at their attorney’s office, they are ready to roll. Setting up a trust, however, is only half of the solution. For a revocable living trust to take effect, it should be funded by transferring certain assets into the trust. Often people fund a living trust with real estate, financial accounts, life insurance, annuity certificates, personal property, business interests and other assets. Funding your trust with bank and brokerage accounts generally requires new account paperwork in the name of the trust as well as signed authorization to retitle or transfer the asset. Likewise, physical bond and stock certificates require a change of ownership to be completed with the stock transfer agent or bond issuer. You may also wish to fund the trust with a checking or saving account, though it is important to carefully consider any implications if these accounts require regular withdrawals or activity.
Share Your Intentions with Your Trustee
When you work with a lawyer to create the trust, you’ll appoint a trustee to manage and distribute the assets. You can include specific details about how you wish for this to be done, and other expectations for the trustee in the trust agreement. Given the fiduciary responsibilities undertaken by trustees, the trust agreement may require procurement of a trustee bond. A trustee bond is a type of fiduciary bond that helps to protect the interests of the trust and beneficiaries by guaranteeing the faithful performance of a trustee in accordance with the law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. The bond can be printed or e-filed from anywhere.
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