Some banks and other financial institutions might allow you to name a beneficiary for a pay-on-death or transfer-on-death option. Under this plan, your assets would pass upon your death to whomever you have named on your account. It might seem like a simple way to pass your assets on to your heirs: You die, your beneficiary gets the money—no probate, no delay. However, there are potential disadvantages to passing on your money this way. Read our warnings before you decide to go this route.
Headaches for Executors and Beneficiaries
While you might just be trying to make things easier for your family by making a pay-on-death designation, you could be doing just the opposite. Some potential problems include:
- Paying estate debt. Part of your executor’s job is to pay off any debts you have left behind, including car payments, mortgage, credit card bills, hospital bills, and more. If all of your money has already been claimed by your pay-on-death beneficiary, there will be no money left to pay these debts, and some of your assets will have to be liquidated to do so. This could mean losing valuable property you had hoped to leave to a child or grandchild.
- Accidentally disinheriting someone. Out of convenience, you might have only named one beneficiary to your account, thinking that person would distribute the money to others according to your wishes. However, your beneficiary is under no legal obligation to do so, and your other intended heirs might be left out.
- Jeopardizing your beneficiary’s government benefits. If you have named a beneficiary who is collecting government benefits such as Medicaid, a sudden windfall of cash could mean they lose those benefits. If the beneficiary has special needs, this could be devastating.
- Conflict with your will. Your bank will transfer your account to your beneficiary before probate happens. If you have named heirs in your will to receive some of your money, it will likely be long gone before the will is read.
- No plan for incapacity. If you suddenly become incapacitated and unable to manage your own affairs, a transfer-on-death clause will do nothing to help you. Your beneficiary will not be able to access the money to pay your bills because they only get the money once you have died.
As you can see, there are a lot of potential problems with designating a pay-on-death beneficiary.
So What’s a Better Plan?
An estate planning attorney can discuss several options for you that will serve you better than a pay-on-death designation. You will want to name Powers of Attorney, for example, who can make financial and healthcare decisions for you if you become incapacitated. You might want to set up a trust so that you can leave money to multiple heirs while avoiding probate. Depending on your wishes and the value of your estate, there are better options than simply naming a pay-on-death beneficiary at your bank. Contact Ross & Shoalmire to learn more.
Are You Looking for an Estate Planning Attorney in Texarkana, TX?
If you are looking for estate planning advice, you need to speak with an experienced estate planning attorney as soon as possible. Contact us online or call our Texarkana office directly at 903.223.5653. We also have offices in Tyler, Paris, Longview as well as Magnolia, AR!