Today, I want to delve into a crucial aspect of estate planning that often causes confusion: bank accounts. I frequently encounter clients who have made mistakes regarding their bank accounts, and I want to shed light on the common practices, their pros, and cons, and ultimately provide you with recommendations for a more secure estate plan.
The Risks of Joint Accounts:
One prevalent approach I often see is individuals adding others as joint account holders. While this may seem convenient, it comes with potential liabilities. If the joint account holder incurs a judgment, creditors could legally seize the funds from that account. This means you're placing your hard-earned money at risk by involving someone else as a joint account holder.
The Pitfalls of Adding Signers:
Another method I come across is individuals adding someone as a signer to their accounts. Although this can serve specific purposes, such as allowing someone to manage your finances in emergencies, a better alternative exists: establishing a power of attorney for financial decisions. With a power of attorney, the designated person gains the legal authority to access and handle your finances as needed, ensuring smoother management during challenging times.
The Recommended Approach: Death Beneficiary Designation:
Here's the strategy I often recommend to my clients: refrain from adding anyone as an account holder or signer. Instead, consider designating a death beneficiary for your bank accounts. This involves specifying a person or entity to receive the funds upon your passing. If you have a trust, designating it as the beneficiary can be an excellent choice. Otherwise, select the person you want to inherit the funds. By utilizing a death beneficiary designation, you effectively avoid probate court, streamlining the transfer of assets to your chosen beneficiary.
Thank you for reading, and until next time, take care and make informed estate planning decisions.