Joint and Designated Beneficiary Accounts: BEWARE!

Your friendly neighborhood branch banker suggests that you change all your accounts to either joint with your kids or to
name your kids as beneficiaries on all your accounts (a “pay on death” beneficiary designation). She says this will make the administration of your estate when you die much less complicated and easier for everyone. Plus, you will avoid “dreaded” probate. Is she correct? It depends very much on each person’s situation, and such changes should not be made without discussing them with your estate planning attorney.

Frequently, the well-meaning banker does not have all the facts necessary to help you decide whether a change in title to
your accounts would be beneficial. Assets that pass through a joint account or any account with a designated beneficiary
are not controlled by your Will. These assets pass automatically upon your death to the named beneficiaries. This can have disastrous, unintended consequences and potentially destroy your carefully thought-out estate plan.

For example, Mary has three adult children, Chip, Mike and Sally. Her husband died several years ago. Chip is very responsible with money. Mike has great trouble managing money and is constantly falling into debt. Sally is disabled and receives government assistance.

Mary’s Will provides that, upon her death, her assets will be split into three equal shares, one for each of her children. Chip’s share is to be paid outright to him. Mike’s share is to be held in trust for his benefit, with a responsible trustee to make investment and distribution decisions. Sally’s share is to be held in a supplemental needs trust so that her inheritance will not disqualify her from receiving government benefits.

Mary visits her bank one day and the banker suggests to Mary that she make all her accounts pay on death to her three children equally. This sounds like a good idea to Mary, but she calls her estate planning lawyer to be sure. Her lawyer advises her not to name the children as beneficiaries, as she wants the accounts to be paid to her children as set forth in her Will. Mary leaves her accounts as is.

Had Mary followed the banker’s suggestion, Chip would have received one-third of the accounts outright, which would have been fine. But Mike’s share would go outright to him and not into a trust, with potentially disastrous results for Mike and clearly frustrating Mary’s intent. Sally’s share would also pass outright to her rather than passing to a supplemental needs trust, thereby negatively affecting her eligibility to receive the government benefits she needs.

The bottom line is to carefully consider any beneficiary designations and changes to accounts and to discuss the effects of such changes with your estate planning lawyer before making any change.

This article first appeared in the November 2022 issue of Lloyd Harbor Life.