We can drive a nail with a wrench and we can unscrew a nut with a pair of pliers. When we lack the proper tools that is better than nothing. Still, we should always use the right tool for the right job. This is also true with our investments and our estate plans. Despite this common knowledge, we find that many people use tools designed for uncomplicated needs when trying to address very complicated challenges. What they wind up with is the metaphorical equivalent of bent nails and stripped bolts. Nowhere is this truer than in estate planning. The fact is that many people have far more complicated lives than their parents had. Frequently, they own businesses and property in multiple states or countries. They may have blended families or children who don’t like each other. Most families have some members who are very successful and others who are less so. Many people have children/grandchildren with special needs. Often, clients try to solve these problems with Pay on Death (POD) accounts or Transfer on Death (TOD) accounts.
A POD account allows holders of accounts at banks and credit unions to name beneficiaries. These arrangements are great for transferring money to our heirs free of the time and expense of probate. The same is true of TOD accounts, which transfer securities to named beneficiaries. For very simple estates, those with few beneficiaries and who are not subject to estate or death taxes, these arrangements work fine. However, there are challenges. Sometimes, money is transferred without making provisions for expenses. These can be a final tax bill, estate taxes for those who live in states that have them, credit card bills, insurance bills, and the like. For large estates, management of investments and taxes becomes difficult or impossible, particularly when there are a multitude of beneficiaries who cannot agree on what action to take, if any. Many people do not realize that their executors may have little or no control over assets in joint name, in TOD/POD accounts, or in vehicles that transfer via other beneficiary designations. These include annuities, retirement accounts, and life insurance. We periodically get calls from children and grandchildren who have read wills that made provisions for them. Unfortunately, the parent or grandparent may have only had assets in joint name with someone or within vehicles that transfer via beneficiary designations, thereby bypassing the will. Of course, other times the deceased just spent the money before he or she died. In any case, discontent and unnecessary expense are frequent results of driving a nail with a monkey wrench. We are not lawyers, this is not intended as any type of recommendation, other than this. We are blessed to live in a country with excellent laws that are designed to efficiently and justly transfer assets upon our deaths and to take care of our spouses and our children. Use a good estate-planning attorney, make sure that your plan is up to date, and prepare your heirs for the eventual transition. Keep us in the loop so that there are fewer surprises for those you love and have left behind. One last thing. Please have your attorney provide clear directions to you and your advisors so that you will not have wasted your time and money.