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Are payable-on-death accounts the right estate planning call?

Payable-on-death accounts are monetary accounts that have a beneficiary designation. That means you state on the paperwork associated with the account that the funds pass to a certain person or other people upon your death. The benefit of such an account is that the funds usually automatically transfer without becoming part of the estate or probate. The bad news is that, if you aren't careful, you can cause unnecessary confusion with such accounts.

Types of accounts that might be payable upon death include life insurance policies, checking and savings accounts and certain investment accounts. Some of these accounts require you to designate a beneficiary, and you might jot down someone's name without considering the implications on your overall estate plan. What if your will says all your assets are to be divided equally between your children, but you only put one child as a beneficiary on the account? That child doesn't necessarily have a legal obligation to share the assets with his or her siblings, and that can cause misunderstandings and hurt feelings.

It might sound like a great idea to put as many assets as possible into accounts that are payable upon death. It keeps the assets out of probate and makes them quickly available to heirs. It also keeps those assets out of your estate, which could pose problems if you have any debts when you die. If there aren't enough assets in the estate, then your executor might have to get the courts to order certain assets returned to the estate -- causing excess legal woes for your heirs.

Payable-at-death accounts are not a bad idea, and they can be very helpful in the context of strong estate planning. Working with an estate law professional to create a comprehensive strategy can help you avoid any pitfalls from such accounts.

Source: Forbes, "When Payable On Death Accounts Backfire," Ashlea Ebeling, accessed Sep. 09, 2016

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