You’ve probably heard that you need to include all of your assets in your will or trusts. While this is mostly true, there’s an important exclusion to this rule. You shouldn’t ever include assets that have a payable-on-death designation in your estate plan.
A payable-on-death designation means that the asset will automatically transfer to the named person when you pass away. Financial institutions utilize this type of designation so they can get accounts to the beneficiary after the account holder dies. It’s sometimes referred to as a Totten trust.
What should you know about payable-on-death designations?
You probably took care of the payable-on-death designation when you started the account. This doesn’t provide the person with access to the account while you’re alive. Instead, they will have to provide your death certificate in order to access the account.
You can’t include these accounts in your estate plan because it can cause problems if you do. If the estate plan and the Totten trust designation don’t match exactly, it can cost your heirs and beneficiaries a lot of time and money.
For example, your estate plan says your checking account goes to your Aunt Sue but the payable on death designation at the bank says it goes to Cousin Helen. The bank will give the account to Cousin Helen, but then the estate may have to also provide Aunt Sue with the equivalent of the account. This would make everyone else’s shares of the estate smaller.
Having a comprehensive estate plan is crucial for all adults. Making sure you take the time to consider how your plan will impact your heirs and beneficiaries is a priority. You can work with someone familiar with situations like yours so you know you’ve done things in the way that’s best for everyone involved.