Last One Standing is NOT a “plan”

November 13, 2014 - Posted by: admin - In category:

taxes - No Responses

Survivor and beneficiary designations may bring unintended consequences.

I was recently giving a short educational presentation and during that discussion, I was asked a very good and commonly asked question.  A gentlemen in the room wanted to know whether putting someone else on his bank account (as joint owner) would prevent the potential need for probate with regard to such asset.

Although we did not have a chance to go deeper into his question and the reason why he asked that question, I am fairly confident that he belongs to the “do it yourself, avoid attorneys, self-help” camp. In other words, he likely has thought about his planning options and determined that he should follow the popular practice of making family members or others co-owners of his bank accounts, his home and other assets so that, should anything happen to him, his assets would “automatically” transfer to the co-owner—presto, magic, no need to engage in any sort of “estate planning” and no need to worry about such things as attorneys, probate courts, etc.  Problem solved!!  Well…maybe not.

What’s wrong with putting a child or other person on your bank account as co-owner and/or putting a family member on the deed to your house or other real estate? After all, this is not difficult to accomplish and is good thinking, right?  In summary, making someone the co-owner of your bank account, your house or other asset, even if done ONLY for planning purposes and NOT with the actual intent to give such partial ownership to such person at the present time, can create tax issues, liability issues and several other unintended consequences.

In addition to these unintended negative consequences, there is also the reality that most people actually desire to have a plan and procedure in place (with various different contingencies) that will provide MUCH greater flexibility, control, specificity and overall positive results than simply providing that the “last person standing” gets all. In other words, even if you learn about all of the unintended negative consequences and decide that you’ll take those risks, if you are honest with yourself, you will likely conclude that you want the higher degree of control over each and every part of your property—you want to decide who gets what, when they get it, how they get it and what they are permitted to do with such stuff. That is what you REALLY want, if you take time to consider it.

So again, to summarize and review, you are free to do whatever you want with regard to your property and your future “plan”.  Included in your range of potential options is the ability to give your property away immediately upon your death to the “last one standing” and this is done different ways, depending on the type of asset and to whom or what entity such asset will pass upon your death.  But, in reality, “last one standing” is really not a “plan” at all—rather, it is more of a default designation for people who don’t want to make a “plan”.

One more VERY important point on this topic.  Survivorship and beneficiary designations are designed to pass assets upon the death of the original asset holder. However, if this is your ONLY plan and tool being used, then you have ZERO protection and contingency planning in place to deal with a situation where you or a loved one becomes disabled.  Why, because survivorship and beneficiary designations are triggered ONLY upon death, so if disability precedes death, then there will be an interim period of “limbo”, where such assets might be inaccessible when they are needed most. This is yet another unintended consequence of following the “last one standing” approach and using it as the sole method of planning.

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