Estate Planning Considerations For Your Bank Accounts

By: Attorney Cindy L. Hangartner – Weld Riley, S.C.

Avoiding Probate

Probate is the court process required to transfer assets to your beneficiaries if your total assets requiring probate are $50,000 or more. One way to avoid probate is by designating beneficiaries on your bank accounts. The beneficiary designation, also called a POD (payable on death) or TOD (transfer on death), is one way to transfer assets directly to your beneficiaries without probate. Naming a designated beneficiary is generally a non-probate transfer.

Designating a Beneficiary

When using beneficiary designations on bank accounts, there are several things to consider.

1. If you fail to designate a beneficiary or if you name your “estate” as the beneficiary, the bank account is a probate asset.

2. Some banks will have beneficiary designations with survivorship rights and others will have beneficiary designations adding contingent beneficiaries (also called “per stirpes”). If you are designating your children as beneficiaries on an account and want your grandchildren to receive their parent’s interest in the account if your child predeceases you, you will need to complete a beneficiary designation with contingent beneficiaries. If you instead sign a beneficiary designation with survivorship language, your other children would receive the entire account and your grandchildren would receive nothing from the account.

3. If you have a revocable trust as your main estate planning document, you may choose to retitle your accounts in the name of your trust or designate your trust as the beneficiary on the account. Retitling accounts is the best option and some banks will simply rename your individual account because you will continue to use your social security number for assets held in your revocable trust. Most banks, however, will require you to close your individual account and open a new account in the trust name, which requires changing all automatic deposits and all automatic withdrawals associated with that account. In that case, designating your trust as the primary beneficiary of the account will ultimately accomplish the same goal.

Naming a Child as a Joint Owner

Some banks encourage elderly clients to name their child as a joint owner on their bank account to help the parent pay bills and so the child has immediate access to funds after the parent passes away. Before taking this action, you should understand how naming a child as a joint owner will affect your estate plan. The child who is a joint owner will inherit the entire account even if the parent intends that all his or her children share the account equally after the parent passes away. For example, assume mom with three children adds one son as a joint owner on her $100,000 bank account to pay bills. Mom passes away and now son owns the entire account valued at $100,000. If son transfers one-third to each of his siblings as mom wants, son will be required to file a gift tax return because he is technically gifting his siblings an amount greater than the annual exclusion for gift tax purposes (currently $15,000 per person receiving a gift). For estate planning purposes, a much better solution is for the elderly parent to name the child as an additional signatory on the account, not as a joint owner.

Should you have any specific questions about the above, have any other trust, will, or probate questions, or if you need to update any estate planning documents, please contact me.

One of the largest law firms in the region with attorneys in Eau Claire, Menomonie, Black River Falls, and Wausau, Weld Riley is ideally suited to provide the legal assistance you need. Contact us for a consultation today!