A careless approach to beneficiary designations and jointly titled assets can easily undermine your estate plan.
For example, you may specify in your will that all of your property should be divided equally among your children. But say that your IRA accounts for half of your estate and names your oldest child as the beneficiary. In this case, your oldest child will inherit half of your estate in addition to a third of the remaining assets. It’s hardly an equal division of your assets, and probably far from what you intended.
Jointly owned property requires similarly careful treatment. Regardless of the terms of your will, the surviving owner takes title to the property after your death. What many people fail to realize is that their wills exert no control over disposition of nonprobate assets.
Understanding nonprobate assets
Nonprobate assets include life insurance policies, IRAs and retirement plans, joint bank or brokerage accounts, and even savings bonds. When you pass away, nonprobate assets are generally transferred automatically according to a beneficiary designation or contract. Because of this, they override your will.
To ensure your estate plan remains in line with your wishes, it’s important to regularly review beneficiary designations and property titles, especially after significant life events such as a marriage or divorce, the death of a loved one, or the birth of a child.
Planning to use POD and TOD designations
Payable-on-death (POD) and transfer-on-death (TOD) designations allow you to transfer assets outside of probate in a simple and cost-effective way. While POD designations are used for bank accounts and certificates of deposit, TOD designations can be used to transfer stocks, bonds, or brokerage accounts. In many states, you may even be able to use TOD designations to transfer real estate.
All you need to do to set up these designations is provide a signed POD or TOD beneficiary designation form. To claim the money or securities after you pass away, your beneficiaries will simply need to present their identification to the bank or brokerage, along with a certified copy of the death certificate.
Although they are useful and convenient, POD and TOD designations must be carefully coordinated with the rest of your estate plan. Without careful planning, your POD or TOD may conflict with your will, trusts, or other estate planning documents.
You should also take care not to use POD and TOD designations for too high a proportion of your assets. If you use these designations for the majority of your assets, there may not be sufficient assets left in your estate to settle your debts, taxes, or other expenses. In this case, your executor will need to initiate a proceeding to bring assets back into the estate.
If you hold joint accounts, use POD or TOD designations, or have large retirement accounts or life insurance policies, proper planning is essential to avoid overriding your will. We can help you identify potential conflicts in your estate plan.