Forbes recently featured this subject in an article titled “When Payable On Death Accounts Backfire.”
The promise of a “payable on death” account cannot be undersold. Funds subject to such an arrangement escape probate and transfer straight the named beneficiaries whether in Overland Park or elsewhere.
No muss, no fuss.
On the other hand, whenever an asset passes “outside” of your estate by avoiding probate, it may not be in synch with your overall estate plan. This may be the case when you really intend for all of your heirs to share in your estate equally.
Problem: If you have any accounts “payable on death” to just one of your heirs, then he or she will receive more of your estate than intended.
Perhaps you want a particular account “payable” to the heir who also will be your executor. Your thinking is that such a move will enable them to have ready cash for funeral and other final expenses when needed. Okay, I get that.
However, to avoid misunderstandings and hard feelings, discuss your plans with your loved ones and make your intentions clear in your estate planning legal documents. For example, you could provide that any proceeds left after your funeral and final expenses will become part of the inheritance for that heir with an "adjustment" made to equalize the heir's share with the other heirs' shares under your estate plan.
In short, “payable on death” accounts and other direct methods to designate beneficiaries outside of your estate planning documents can be incredibly useful when used correctly. Unfortunately, it can also be downright counterproductive if they are not properly taken into account.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.For more information about estate planning and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Forbes (August 9, 2013) “When Payable On Death Accounts Backfire”