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Personal Financial Management: Did You Just Mess Up Your Estate Plan?

Messing Up Your Estate Plan

So, you just spent significant time and money carefully creating an estate plan with your lawyer. Whether that means you developed a trust that appoints a trustee to manage your wealth for future generations, or you have executed a will that carefully designates which beneficiaries will receive your estate, you naturally want that plan followed, right?  

You go to the bank or to your broker, and they ask,Do you want to add someone else on your account?” Or “Do you want to name someone the beneficiary?” While bankers, brokers, and financial representatives typically mean well, they are not lawyers. And by “helping” you, they may actually be destroying your estate plan.  

Too many times, individuals fail to understand how the inadvertent use of joint accounts, or beneficiary designations on various assets will result in your carefully crafted estate plan going by the wayside or at least not governing what may be very valuable assets such as bank accounts, retirement accounts, life insurance policies, and even real estate. Use of these designations will always result in provisions in a will or trust being disregarded as it relates to those assets.  

The Truth About Joint Accounts & Beneficiary Designations 

Joint accounts, POD, TOD, and death beneficiary designations are convenient, but they destroy estate plans unless those designations ARE the estate plan.

Most individuals believe that if they create a will and/or a trust, the provisions in those instruments will control ALL of their assets regardless of how those assets are titled. Nothing could be further from the truth.  

Nearly every type of asset an individual living in Ohio can own is able to be passed on to others on the owner’s death by simply probate avoidance techniques that include naming someone as a joint owner with rights of survivorship or naming someone as a payable on death/transfer on death (POD/TOD) beneficiary. This can be an effective and highly efficient way of avoiding probate upon the owner’s death. This is because that surviving beneficiary can claim the asset by merely providing a death certificate of the owner. No probate or other type of administration is needed. The transfer is affected quickly and easily without the need for legal assistance.  

However, this is also the reason that using these techniques where there is already an existing estate plan is dangerous. Existing estate plan documents have absolutely no impact on those assets that are registered with a joint owner with rights of survivorship or POD/TOD designations. Those separate designations effectively trump any and all estate plan documents.  

For example, Ms. Jones is a widow with four adult children. She owns a home and has the bulk of her wealth in bank accounts. She creates a will or a trust that leaves all of her estate to her four children. Mrs. Jones decides that she wants assistance with her bank accounts to allow her daughter, Mary, to write checks for her on those accounts. The bank manager, trying to help Mrs. Jones, tells her to add Mary to the bank accounts so that Mary can write checks and help her mother with her accounts. The bank’s internal policies provide that adding Mary to the account makes her a joint owner with rights of survivorship.

The Power of a Power of Attorney

Upon Mrs. Jones’ death, Mary is the legal owner of the bank accounts even though Mrs. Jones’ will says that all four children should receive the estate. While Mary could decide, out of the goodness of her heart, to share the bank accounts, she is not legally obligated to do so. Therefore, Mrs. Jones’ bank accounts were inherited by only one child and not all four. Her estate plan was destroyed.  

The Power of a Power of Attorney 

Use a power of attorney to allow others to assist you with financial asset management.

For those individuals that need assistance with their personal financial management, like Mrs. Jones, Ohio law provides a safer and more effective tool to do that. Persons can execute a power of attorney instrument that designates one or more persons to have authority to manage their assets, assist them with health care decisions, and conduct other forms of business for them.

The Proper Use of Estate Planning Tools

By executing a power of attorney, rather than adding someone onto an account as a joint owner, the owner’s estate plan is saved. The owner’s will or trust will still control the disposition of those assets even if one person is designated as a power of attorney.  

The Proper Use of Estate Planning Tools 

The use of joint accounts, POD, TOD, and death beneficiary designations can be appropriate estate planning tools; however, they must be used carefully and with the knowledge and intent to use them for that purpose.

Ohioans often use joint and survivorship account designations, POD/TOD beneficiary designations because they are so easy to create and maintain. These techniques can be an appropriate device for passing all types of assets including bank accounts, stocks, bonds, mutual funds, insurance policies, retirement accounts, vehicles, and even real estate. The simplicity with which these assets transfer following the owner’s death makes them an attractive estate planning tool.  

Find the Right Ohio Estate Planning Attorney 

It is important to understand that these designations are a planning technique. They therefore should be used carefully and with intention and understanding as to what they will do if there are other estate planning documents such as wills or trusts. Having an attorney experienced with estate planning and wealth transfer is key to understanding what the best approach is for you and your family.  

The attorneys at Plakas Mannos have extensive experience with assisting families with estate planning and wealth transfer. Contact an estate planning attorney near you to get started.


About the Author

Headshot of David L. Dingwell

David Dingwell is a partner at Plakas Mannos who has helped hundreds of Ohio families strategize and implement their wealth and estate planning goals.

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