Are Pay On Death Accounts Good Alternative To Estate Planning?
Hi there, my name is Bridget Mackay. I’m an attorney in Petaluma, California. I practice in the area of wills, trusts, and estate planning, and elder law.
Today, I want to talk about Pay on Death Accounts. This is an account you may have at a bank, or a Schwab, or an investment house and they allow you to name a beneficiary if you were to die. A lot of folks or some folks seek these accounts out as a temporary solution to an estate plan, use them for their plan, so that they know when they pass away, those accounts will go to the people that they’ve named. But I want to point out two situations in which this could really backfire on them.
A lot of folks do this to avoid probate and the high cost of probate, which you can learn about in prior blogs I’ve done. But the problem with them are, is if you, let’s say you’re older and you have named an adult child as your beneficiary and you become incapacitated and that child dies during your incapacitation, so you’re unable to change who the beneficiary is, then those assets will end up going through probate anyway. If you’re thinking you’re doing it for a young child, then those assets… And you pass away, those assets do go to a child, but they’re young and they get them either outright, if they’re 18 and over, or if they’re 18 and under, those funds are held in a guardianship for them and someone has to go to court to establish that.
The other issue with pay on death accounts, I guess this would be the third issue, is that if you are incapacitated and you wanted… Someone needed to get to those funds for your care, it doesn’t matter if you have a pay on death beneficiary, because that only counts when you die. But if you’re incapacitated and you’re not dead, then you’re still in probate court or having to go to court to have someone established as your conservator to spend those funds on you.
I don’t recommend that as an avenue in order to dispose of your estate. I know it seems like the cheaper alternative, but in truth, at the end of the day, it’s a lot more expensive. If you have any other questions or concerns in this area or you have been using pay on death accounts as your estate plan, please contact a qualified estate planning attorney and clean all of that up.