So InKleined
by Linda B. Klein, M.Tax., J.D., R.F.P
(Send your questions on any aspect of financial planning c/o this
publication. Please include your name, address, and phone number.)
EASY "WILL SUBSTITUTES" AND JOINT OWNERSHIP
Anyone who has the presence of mind to engage in
even the most basic estate planning needs to understand
that a last will, of itself, is neither the only answer nor the total
answer. Several other estate planning tools are readily
available to help avoid many pitfalls inherent in relying solely
on a last will to effectuate your estate plan. A good starting
point is to consider "converting" probate property into non-
probate prop- erty -- often, very easily -- using what are
collectively called "will substitutes."
As mentioned several columns ago, property which
passes to its successor(s)-in-interest automatically upon the
death of the original owner -- whether by title, contract, trust,
or deed -- is non-probate property. Bank accounts,
certificates of deposit, savings bonds, etc., can be titled so as
to indicate rights-of-survivorship merely by designating the
person(s) to whom the property is "payable on death"
(P.O.D.) or, for securi- ties and certain other assets (such as
an automobile), "trans- ferable on death" (T.O.D.).
Alternatively, most financial institutions will accept the use of
what is called a "Totten Trust" designation (Jane Doe,
trustee, for the benefit of Jill Roe, Totten Trust dated xx/xx/xx)
if neither the P.O.D. nor T.O.D. designation is available.
With all three of these methods of titling assets, the
sur- vivorship interests pass, by operation of law, to the
named ben- eficiaries when the owner dies. Of real practical
importance here is that affixing survivorship interests not
only transmutes probate property into non-probate property,
but also retains all present rights in the property by allowing
the owner unimpeded and exclusive control of the asset. For
example, the depositor enjoys total access to her P.O.D. bank
account, and can withdraw funds at any time, and can even
close the account entirely or change the named
beneficiaries.
What about accounts in joint tenancy? There are four
important factors to consider in establishing an account with
another title-holder. First, when you create a joint tenancy
you are essentially making a gift of half the property, and
such a gift may precipitate tax consequences you had not
even anticipated, much less intended. Such "gift" aspects
can be circumvented, however, by providing the financial
institution holding the account with a letter stating that the
joint tenancy is "for convenience only" and is not to be
construed as indica- tive of any donative intent. Second,
regardless of whether or not there exists any donative intent,
the person you name as a joint tenant gains, for all practical
purposes, virtually unlimited access to the account.
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