Sometimes there are oversights when estate planning for accounts. There is often an account that goes through probate.
This is because there’s usually one account that didn’t have a joint owner or a beneficiary designation. Remember, the only accounts that have to go through probate are those that the decedent held in their name alone which did not have a beneficiary designated. This strategy is the same one that we use when estate planning for a vehicle.
There are a few additional considerations with bank accounts. If you have joint owners of bank accounts and one owner dies, the balance of the account goes to the remaining owners outside of probate. Some people think that this is what they want. But it’s important to analyze this strategy a little bit further.
When there are two joint owners of an account, that account is an asset that is reachable by creditors. So if someone has a joint checking account with one of their children and that child is sued for damages in a car accident, the winner of that lawsuit could seek funds from the joint account (even though the parent wasn’t involved in the car accident). Be careful how you change account ownership if you are simply doing it for convenience.
The other concern about joint ownership is about money that is left over to pay final expenses. After someone passes away, someone will need to pay for the funeral and burial, last medical expenses, maintenance of the home, etc. If everyone gets the account balances outright, everyone is likely going to have to contribute what is then their own money to pay some of these expenses. To alleviate this concern, it may be beneficial to allow a bank account to remain in the individual’s own name. This will allow the executor to have funds to pay expenses after the death of the account owner.
For bank accounts, there is an option to transfer them directly to trusts or transfer on death to trusts. You don’t want to change any retirement accounts to have trust owners or trust beneficiaries.
Don’t neglect estate planning for accounts. It’s important for the executor to have access to funds It’s equally important that the funds not exposed to creditors.
