But in our conversations with clients, one thing becomes clear again and again: taking a look at joint accounts and beneficiary designations is often overlooked, and matters just as much as having a will or trust or other estate planning documents in place.
Why, you might ask? Because these types of assets can be handled inappropriately during your life, and/or pass in a way you did not intend at your death. Let’s start with the latter, as that often becomes a main focus for people. What will happen to an asset upon your passing? For a joint account or an account that names a beneficiary, that asset will pass
outside of probate. That means the way those accounts are titled today can override even the most carefully written will or trust. And without a clear plan, the result can be confusion, hurt feelings, family disputes, or assets going to someone you never intended upon your passing. As far as what can happen to a joint account during life, you’ll need to consider who may be a joint owner on the account, the powers that they will have, what creditor or other negative issues of theirs could impact you and what you intend for the account at your passing. The joint account may not be what’s most appropriate for you given all of these considerations.
We thought we’d walk you through what you really need to know - and our best practices for handling joint accounts and beneficiary designations when it comes to your overall estate plan.
Why Your Account Titles Matter More Than You Think
Joint accounts and beneficiary designations can be powerful tools for estate planning, but they don’t always behave the way people assume when someone passes away. A joint account labeled “joint tenants with right of survivorship” means the surviving account owner becomes the sole account owner by “operation of law”. This might seem all well and good! But, if you had a different intention that was written in your will or trust, but not reflected in your overall estate plan (including how those accounts are titled and the beneficiary designations on those accounts), it can be a bit of a problem. Actually, a large problem! This is where the confusion and disputes can come in and wreak havoc - relationships can be ruined!
The
Consumer Financial Protection Bureau (CFPB) explains that joint accounts often allow the surviving co-owner to continue using the account immediately because the surviving account holder becomes the sole owner of the funds by operation of law. That kind of arrangement can be convenient. But, it can also be messy if that was not intended with the overall estate plan and/or the wrong person is on that account! This ultimately brings us back to the importance of an overall estate plan! It is imperative to routinely review accounts to make sure they are titled appropriately. This means understanding what your overall plan is and factoring in this intention with all your accounts, including those that are joint and/or have beneficiary designations on them. Each account needs to be reviewed to determine the appropriate titling and beneficiary designations that may align with your goals. Here are our best suggestions for staying on top of things:
- Name joint owners thoughtfully. Adding someone “just to help pay bills” or someone who you assume will handle the account at your passing in a way you want, can unintentionally cause problems during your life and at your passing. You could have a joint account owner with creditor issues or one applying for government benefits or, simply, one who uses the account to their benefit, as well you could be disinheriting intended beneficiaries at death. Expecting the surviving joint account owner to “do the right thing” so funds are passed out to others assumes a lot of things will go right. We often see a lot of things go wrong in these kinds of instances. You want to be protective of your loved ones and not assume things will “just work out”.
- Don’t assume your will or trust controls everything. They don’t. You can incorporate them in your plans, but, again this takes intentional planning.
- Always remember: convenience accounts or powers of attorney may be better tools if you only need help managing finances and don’t want to change who inherits an account which are provided for in a different fashion in your will and/or trust. Or, one option could be that you provide what should happen with any account through a lifetime trust. The lifetime trust can provide much more flexibility into the future and avoid probate. You can provide who can manage your assets, including bank accounts and brokerage/investment accounts, during your life and how they manage such assets. The assets are then considered to be managed by the trustee, but, are not affected by a person who would otherwise have joint ownership of an account. As well, the asset can be distributed in accordance with your overall estate planning intentions, including what should happen if a beneficiary predeceases you or passes after you with funds remaining in trust or for a beneficiary who is a minor or incapacitated, and so on.
Understanding Beneficiary Designations
Beneficiary designations can apply to things like:
- Retirement accounts (401(k), IRA, Roth)
- Life insurance policies
- Bank accounts
- Brokerage or investment accounts
Beneficiary designations mean determining who or what should be the beneficiary on the account. A person can be a beneficiary, but, so can a lifetime trust or charities. With these designations, the account avoids passing through probate, meaning Surrogate’s Court (for example, Erie County Surrogate’s Court) does not have any involvement in the account. The caveat would be if there is litigation or creditor issues that could, otherwise, call into question how the account is handled. A beneficiary designation on an asset also means that if that designation is outdated - an ex-spouse, a deceased relative, or no alternate beneficiary is provided for - the outcome can be far from what you intended.
It’s critical that any beneficiary designation is considered in light of your overall estate planning intentions. We’ve seen this not be the case - with the end results being disastrous.
A couple of common issues we see in New York Estate Plans
It can be easy to overlook beneficiary designations and joint accounts when you’re thinking about setting up a will or a power of attorney or other estate planning considerations. But we urge you to think about the concerns and considerations presented here as part of your overall estate plans, as errors are more common than you’d think! As well, you’ll want to continue to consider these accounts as you move forward in life. Things change, people change, goals change and financial institutions change! Here are some of the common circumstances and assumptions that we see that lead to errors:
- Someone names a beneficiary 20 years ago and never updates it.
- A person assumes their will can “fix” an outdated beneficiary choice. It can’t.
- Beneficiaries die and no contingent beneficiary was ever named.
- Beneficiaries receive funds outright when that is not desired (think: minors, incapacitated individuals, a nursing home resident, a person with creditor issue, a person who cannot properly handle a windfall, a person whose own estate planning or lack thereof can lead to unintended consequences, etc.)
- People fill out paperwork electronically and it fails to properly designate a beneficiary! (IE: they never confirm with the financial institution the designation was made properly and is on file).
- A financial institution cannot locate or does not have the beneficiary designation on file and this is not known until it’s too late!
Why This Matters Even With a Will or Trust
People are often surprised when we explain that your will or trust does NOT override a joint account or beneficiary designation! Even revocable trusts need to be properly funded to work the way you expect.
Cornell Law School’s Legal Information Institute states that non-probate assets transfer “by operation of law, contract, or account designation, outside the terms of a will” This is why your estate planning attorney will always ask detailed questions about:
- Account ownership
- Titling
- Beneficiary forms
- Contingent beneficiaries
- Purpose of each account
It’s not nosiness - It’s essential to getting your plan right, and
complete.
Tips to Make Joint Accounts and Beneficiary Designations Work
With Your Plan, Not Against It
1. Review your accounts and designations at least once a year
Life changes quickly. A move to Buffalo, a new baby, a divorce, or a death in the family can all impact who should inherit, and it’s easy to forget if you started a new account, or missed one.
2. Keep an updated list of accounts and beneficiaries
It makes your attorney’s job easier and helps avoid surprises later.
3. Avoid adding adult children as joint owners “for convenience”
This creates risks:
- Their debts or divorces could jeopardize your money
- It can unintentionally disinherit siblings or others you intended to benefit
- They legally own the account the moment you add them
A
durable power of attorney often solves the “I just need someone to help pay bills” issue without gifting ownership of an important account. (Or, potentially, a lifetime trust can be set up with instructions for a trustee to pay bills with trust assets during your life).
4. Always have Contingent Beneficiaries
If your primary beneficiary predeceases you, the account could end up in probate unnecessarily unless you have designated someone else. Remember, a lifetime trust can be named as the beneficiary on an account which short of retitling the asset, is an easier option to consider (even if eventually you retitle the asset).
5. Align your will, trust, and account titles together
When these don’t match, that’s when costly disputes tend to arise. I often say, take action now - don’t wait. It can take practice in understanding all the factors affecting your estate plans - by starting now, you can be more informed as time moves on and continue to stay on top of those joint accounts and beneficiary designations! You’re overall estate plan is the main point to remember and consider - not just piecemeal actions!
Ruth P. George’s, Esq. Checklist to Get Your Accounts Estate-Planning Ready
We love to help you get organized! Here’s a copy of our clean, practical beneficiary to-do list you can copy, save, or keep on the fridge:
Joint Account & Beneficiary Designation Checklist
☐ List every account you own, including whether it’s individual, joint, TOD (transfer-on-death), or POD (payable-on-death)
☐ Confirm primary and contingent beneficiaries for retirement and insurance accounts
☐ Remove outdated beneficiaries (ex-spouses, deceased relatives, estranged family)
☐ Review titling for all bank, brokerage, and real estate holdings
☐ Identify any accounts that need to be aligned with your will or trust
☐ Note any accounts used only for convenience - and consider using a power of attorney instead
☐ Consider setting up a lifetime trust to provide greater flexibility and instructions for your overall estate plan
☐ Meet with your estate planning attorney to review alignment with your overall plan
Let’s Get Started
Joint accounts and beneficiary designations can be powerful planning tools - but when they’re outdated or misunderstood, they can create the very problems your careful estate planning was trying to avoid.
If you're in Williamsville, Amherst, or Buffalo and want to be sure your accounts actually reflect your wishes, Ruth P. George Law PLLC can walk you through every step. From aligning account titles with your will or trust to helping you understand how probate impacts your assets, we’re here to make sure nothing falls through the cracks!
If you’re looking for guidance on how your accounts fit into your broader estate plan, feel free to reach out or swing over to our office right in the heart of Williamsville! You can also explore our
Estate Planning and
Probate pages for more information, or feel free to
Contact Us when you’re ready to start putting all the pieces of your estate plan together.
