The Pros and Cons of Pay on Death and Joint Tenancy Accounts

Many people use pay on death accounts or joint tenancy accounts as a means of transferring assets after death without the need for probate. These tools, used properly, can be very cost effective and easy to administer. Unless and until...

What are pay on death and joint tenancy accounts?

Pay on death accounts and joint tenancy accounts operate similarly. With a joint tenancy account, two people co-own the account. When one of those people dies, the survivor takes a certified copy of the death certificate to the financial institution and the entire account is transferred to the individual survivor.

Pay on death accounts are different, mainly, in the fact that the account is not co-owned. Rather, the account owner designates a death beneficiary to the account. And the death beneficiary then appears at the bank with the death certificate and collects the account without a probate process.

Either way, the process is quick and relatively easy. So why not just make all accounts joint tenancy or pay on death accounts?

These accounts may be problematic if your named beneficiary/co-tenant also dies.

Death does not always come in the order we anticipate. In the case, for example, of a simultaneous death, there could be two problems. For joint tenancy and pay on death accounts, if there is no contingent beneficiary named, that property may need to be probated. An extra complication may occur in the event of a simultaneous death of both holders of a joint tenancy account. Because normally one person would die first, transferring the funds to the survivor. And then the survivor's estate administration would transfer what is left of that account to the survivor's heirs or beneficiaries. When we cannot tell who died first, this process may suddenly become complicated.

In short, joint tenancy and pay on death accounts are efficient for a first death, but could cause problems at the second death.

Pay on death accounts are great when you already have a living trust.

After creating a living trust, you must transfer accounts to become titled as trust property. In most cases you can still manage your account in exactly the same manner. The titling will just change from "Pat Roe" to "Pat Roe, Trustee of the Roe Living Trust dated February 10, 2019." But sometimes that account re-titling causes a hassle when the account is one that includes automated transactions, such as automatically deposited Social Security benefits, subscription accounts (Netflix, etc.), and automatic bill payment services. Rather than changing title to such actively used accounts (which would require you to close the old account and open a new one), you can name your living trust as the death beneficiary of the account. Then at your death, the successor trustee can walk into the bank with a copy of the trust and a death certificate. And the account would then transfer to the living trust without the need for probate.

In conclusion, pay on death accounts are a great tool under some circumstances. Especially when you already have a well drafted living trust that can pick up the assets from such accounts and manage them in accordance with your wishes expressed in your living trust.

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