In explaining the complexities of estate planning, I often talk about buckets. You may not always need a bucket but when the need arises, you will always be glad you have one. This is also true when it comes to the administration of your estate and final affairs.
There are multiple ways to avoid the complications of probate when it comes to your estate. One of those ways is to ensure that you have your accounts set up to pay automatically upon your passing to specified named beneficiaries. You can do this with most, if not all, of your financial institutions by instructing them to place a “Payable on Death or “Transfer on Death” (hereafter “POD”) beneficiary on your account. If the named POD beneficiary survives you, they can simply walk into your financial institution and supply a death certificate to retrieve the assets for accounts that are set up in this manner.
The best part of setting up your accounts this way is it does not cost you anything and you do not need an attorney to place a POD beneficiary on your accounts. Usually, all you have to do is fill out a little paperwork. However, as someone who regularly works with families during estate administration, relying solely on POD designations can sometimes cause some interesting dynamics with the loved ones you leave behind.
If all of assets are POD to certain family members, they will easily be able to collect your assets upon your passing and the assets will, thankfully, avoid probate. On the other hand, when someone dies there are many administrative matters that need to be handled such as paying for funeral or burial expenses, paying off any debt such as credit cards, medical bills or vehicles and filing your final tax return.
Here’s where the “bucket” issue appears.
If all your assets are set up as POD, there is not a “bucket” for the loved ones you leave behind to pay for these end-of-life matters. Additionally, the POD beneficiaries are not required to use what they received to do so. Sometimes, this can leave the one “responsible” child or beneficiary with “footing the bill” while the other beneficiaries just receive a check. This why I tend to lean towards creating a revocable trust to receive any assets first. By using a trust as part of your estate plan, you avoid probate but also create the family bucket to allow for someone to handle all the administrative matters before anything is distributed to your beneficiaries.
Creating a trust can sound intimidating, and it’s not necessary for every family. But not every family situation is simple. If you want to make sure someone has both the authority and the resources to handle your final affairs properly — without placing the burden on one child or loved one — a revocable trust can provide that structure.
In the end, estate planning is about preparation. You may not need the bucket today. But when your family does, they will be grateful it’s there.
The information contained in this article does not constitute legal or tax advice and you should consult with your own legal counsel or tax counsel about your situation. If you have questions about this article or the Foundation’s services, please contact us at 501-376-4791, Ext. 5907 or [email protected].