Don’t Add My Name to Your Accounts – A Pitfall of DIY Estate Planning

- January 11, 2017

It’s now the New Year, and many have resolutions to create a Trust, Will or Powers of Attorney. Good intentions abound, and some of you may have even been subject to that difficult conversation over the holidays. There are simpler ways to transfer assets for those averse to planning, but they may come with unintended consequences.

A family member wanting to pass assets but not wanting to plan may take the very common step of adding the intended beneficiary as an owner on accounts, or even on a house. Adding an owner can help to transfer the property around probate (the court supervised distribution of your assets), but in doing so the grantor may be at risk and the beneficiary may lose out.

My grandmother once had the same talk with me, and told me she wanted me to administer her estate. Her plan was to add me to all of her bank accounts as an owner, and to add me as an owner of her house. She wanted to get around the difficulties sometimes associated with using a Power of Attorney (they cost money and can sometimes be rejected) and the probate process for her house.

There are multiple issues with this option and a couple of easy (sometimes cost effective) solutions. Here are just a couple of the issues, and the solutions that can help:

Issue 1: A grantor who simply adds ownership to accounts opens his or herself up to unrestricted use of the funds in those accounts, many times the intended beneficiary drains the account prior to any catastrophic event. Abuse, or the perception of abuse of funds, can lead to contests over assets and accusations of undue influence.

Solution 1: Multiple banks have their own power of attorney forms where you can nominate your power of attorney for that bank without creating the general power of attorney document. For accounts and banks who do not offer these options, an attorney can create your Durable Power of Attorney. Additionally, a Trust is a more effective tool in ensuring that the agent you nominate takes over in the event of incapacity.

Issue 2: Inherited assets receive a step up in basis, but assets owned at the decedent’s death do not. A house purchased for $20,000 in 1950 that is worth $400,000 would be due capital gains tax on the difference. If a person inherits that house, the new basis for calculating the gain is the value at time of death. The $400,000 value today will be the new basis, and the beneficiary owes much less in capital gains tax.

Solution 2: In Arizona, often the best solution is a trust, for planning and asset transfer purposes. For smaller estates, a beneficiary deed can transfer the house to a beneficiary and the house still transfers around probate while stepping up in basis. The will has no effect on the transfer in this scenario.

An attorney can help with the solutions described above. If you need assistance or have questions regarding your property and the best way to transfer it, call the Steven M. Jackson Law Group, LLC today at 480.994.5000 or 928.458.7402 for a free consult at our Phoenix, Scottsdale, Gilbert, or Prescott Valley, Arizona offices.

The information above is for educational use only and does not constitute legal advice. Seek an Attorney in your state for information regarding solutions discussed above and whether they are applicable in your individual state.

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