Many people turn to payable on death (POD) accounts and joint tenancy as quick fixes for avoiding the probate process.
While these strategies seem straightforward, they come with hidden risks and limitations that can undermine your estate planning goals.
In this article, we’ll shed light on the pitfalls of these methods and discuss why a revocable living trust serves as a more comprehensive solution.
The Shortcomings of Payable on Death Accounts
POD accounts let you name a beneficiary who inherits the assets in a specific account upon your death. While easy to set up, POD accounts have several significant drawbacks:
Incomplete Coverage: Limited to Specific Assets
A POD account will only transfer the asset linked to it, like a bank account or a certificate of deposit. It won’t cover other valuable assets like your home, cars, or collectibles.
Rigidity: Limited Options
Some POD accounts limit you to a single beneficiary. If your intention is to divide assets among several people, this setup won’t work for you. Plus, even if you can have multiple beneficiaries, you are typically required to provide equal distributions. This may not be consistent with your wishes.
Outdated Information: The Risk of Neglecting Updates
Life circumstances change, but your POD account won’t automatically adapt. If you forget to update the beneficiary after a significant life event, your assets may end up in the wrong hands.
The Hidden Risks of Joint Tenancy
Joint tenancy grants the “right of survivorship,” which means that assets automatically go to the surviving tenant upon one’s death. But this convenience comes at a price that is probably not worth paying.
Sacrificing Sole Ownership: Shared Control
Joint tenancy requires you to cede exclusive control over the asset. All co-tenants must agree on decisions regarding the asset, which can lead to conflicts.
Creditor Exposure: Shared Liability
Your assets could be at risk if a co-tenant encounters financial troubles or legal issues. In a joint tenancy, the asset is subject to the debts and liabilities of all parties involved.
Revocable Living Trust
A revocable living trust offers a more effective, safer alternative for estate planning.
All-Inclusive Asset Coverage
A trust can encompass a range of assets, making it a one-stop solution for your estate planning needs.
Customized Distribution Plans: With a revocable living trust, you have the freedom to define complex distribution plans, accommodating multiple beneficiaries and varying conditions.
Retained Ownership Control: As the grantor, you maintain complete authority over your assets, ensuring that they are managed according to your wishes.
Enhanced Asset Protection: A well-crafted trust can offer robust protection from creditors and legal claims, adding an extra layer of security to your estate.
Privacy Guarantees: Revocable living trusts are not public records, unlike wills, ensuring that the details of your estate remain confidential.
While POD accounts and joint tenancy facilitate probate avoidance, their limitations and potential risks make them insufficient as true solutions.
A revocable living trust provides the robust, flexible planning needed to secure your legacy effectively. You get the same core benefit along with many others, and we have only scratched the surface here.
Schedule a Consultation Today!
Now is the time for action if you are rolling the dice without a comprehensive, professionally prepared estate plan. You can call us at 818-937-2335 to schedule a consultation at our Burbank, CA estate planning office, and you can alternately send us a message through our contact page.