Joint accounts and Transfer on Death can torpedo an estate plan

You just met a nice person at a bank, who told you there might be a way to avoid the horrors of probate by titling all of your accounts jointly with one of your children. On the other hand, maybe you received information from a friend or neighbor who did it. An online advisor might recommend that you specify all of your accounts as Transfer on Death (TOD) or Payable on Death (POD) again to avoid probate.

Were they right? The answer, as in so many cases is, “it depends.”

First, probate in Pennsylvania is not the complicated process experienced in many other states. Sure, there are rules to follow and these rules have become somewhat more complicated in recent years but. Generally speaking, unless there are some unusual assets or circumstances or conflict among beneficiaries, there is a straightforward way to resolve an estate. With more than one beneficiary it should be concluded with a Family Settlement Agreement usually prepared by an attorney.

Sometimes joint titling and payable on death works, especially if there is only one beneficiary such as an only child or if the joint account owner or POD is your spouse. In fact, as to spouses, joint accounts are usually the preferred way to go.

However, many individuals, on the death of their spouse, might think it easier just to name one of the children as joint or payable on death on all accounts or joint on all real estate trusting that child would “share” with all other adult children. This is often done not realizing the provision in the Will that clearly states assets are to be equally divided is overridden by titling. Here are some important facts:

When you name one child as joint or transfer on death or payable on death, that child is not legally obligated to share with anyone

It does not matter what the Will says. So often as an estate planning attorney I hear “John” is an honest person and will “do right” by his siblings sharing anything equally when he inherits by joint titling or transfer on death. After hearing this I raise some possibilities.

Suppose John, shortly after you die, dies himself. Then the assets go directly to his estate and not usually to the individuals you originally intended. I also ask whether John is married. If he places the assets he receives through joint ownership into a joint account with his spouse, the assets go to his spouse and not to his siblings. If your son has creditors, the creditors could try to attach the assets. If he goes through a divorce, depending on how they are handled after and depending on the laws of the state, the assets could be exposed in divorce. The result is that naming one person as joint on accounts