When someone completes an estate plan, they have an excellent grasp of why they signed their Will or Trust and what that accomplishes. As time passes, folks often forget what their estate planning documents control. These documents are intended as the means to distribute assets upon death.  People mistakenly believe it controls all of their assets. However, a Will or Trust can only distribute those assets that are titled correctly at the time of death.

A Will only controls assets that the decedent owned with no joint account holder or beneficiary. A trust only controls those assets already titled in its name or where it is listed as a beneficiary. A financial institution may encourage you to retitle accounts by making them “Payable on Death” (POD), “Transfer on Death” (TOD), joint with a child, or by naming a beneficiary to the account.  Any of these retitlings will render the terms of the Will or Trust ineffective because the assets will no longer be governed by your Will or Trust. Title trumps all other legal documents.

These title recommendations are typically made in order to “avoid probate.” However, the bank or brokerage may not have reviewed the relevant estate planning documents prior to making any such recommendation. These title changes can thwart your intent and create problems for your surviving family members especially if trust provisions are involved.  Again, if the asset passes directly to a third party at your death, trust provisions will not be effective.

In some instances, titling can trigger tax consequences that could have otherwise been avoided. In states with inheritance tax, putting a family member on a bank account can trigger tax being owed at their death, even if it’s your own money in the account. It can also have unforeseen estate tax implications.

If avoiding probate is a major estate planning goal, this can be better accomplished with a Revocable Living Trust. Such a trust changes title to the trust while you are alive and has all the protections of estate planning documents and the probate avoidance of title changes without the additional risk of thwarting an estate plan with title shortcuts.

Accordingly, please exercise caution if you are encouraged to retitle your accounts.  Contact an attorney directly before any change to your accounts are made.

Damian L. Halstad or Dennis M. Twigg can assist you in making sure your estate planning needs are handled properly and professionally. If you need help with your estate planning matters, get in touch today by calling (410) 848-4444, or to see what others have said about us, please read our reviews online.

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