Your heirs might avoid probate but gain other headaches
The information in this column is intended to provide a general understanding of the law, not as legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances.
Q: Avoiding probate with a revocable trust is too expensive and complicated for me. Are there any downsides if I avoid probate by using survivorship and payable on death accounts, and a transfer on death deed, and then also designate beneficiaries on all my retirement accounts? I am not married, and I have four children.
A: Yes, there can be downsides.
You mentioned using survivorship accounts. This type of account typically would have you and one other person (the child who lives closest to you, or the child who helps you out the most) on that account. When you die, that child will receive all of the remaining money or stocks in the account.
Often, that child will feel no obligation to share anything with the others. After all, that child might have been helping you out for years while the other three siblings contributed little of their own time and effort.
It's not a big problem if the account in question is your everyday checking account, but it can create a lot of issues among your children if the account has significant value. Sometimes, the child named on the account will agree to share the money equally with the other siblings. But if large amounts are involved, there can be gift tax issues that must be addressed.
Another possible problem can arise if you outlive one or more of your children. When you use a payable on death account or designate beneficiaries on retirement accounts, you typically are not able to provide for the share of a deceased child to pass to that child's children. Instead, only the named living beneficiaries split the proceeds. This might be the result you want. Or it may not be an issue because the deceased child might not have had any children. But often, payable on death accounts or beneficiary designations on retirement accounts can leave grandchildren with nothing.
And what happens if you die with credit card bills and other debts? All of your money will be passing directly to one or more of your four children, so your "estate" won't have any money to pay the bills. One child might feel obligated to make the payments, but then it might be difficult or impossible for that child to get reimbursed by the others.
Who pays for your funeral? You could prepay it, but if you don't address this before you die, the same issues regarding reimbursement could arise.
Who files your final income tax return and pays the taxes you might owe? Again, one child might step up and handle these matters, but reimbursement is still an issue.
Ronald Lipman, of Houston law firm Lipman & Associates, is board certified in estate planning and probate law by the Texas Board of Legal Specialization. stateyourcase@lipman-pc.com