Trusts vs. Payable On Death Accounts: Which Is Better?

Many people go into estate planning with the goals of helping their loved ones avoid probate and controlling how their property is distributed after they pass away. While there are many ways to do this, two very popular options are trusts and payable on death accounts. So, which one is better for you? Our St. Petersburg estate planning lawyer explains more below.

How Do Payable on Death Accounts Work? 

A payable on death designation can turn a bank account into an effective estate planning tool. Also known as a transfer on death designations for investment accounts, your bank or financial institution has forms you can fill out to name one or more beneficiaries to receive the funds in the account upon your death. As with other types of beneficiary payments, such as the proceeds of a life insurance policy, payable on death accounts are not subject to probate, which simplifies estate administration for your loved ones.

Advantages of Payable on Death Accounts 

Designating a beneficiary through a payable on death account allows your beneficiaries to receive the property automatically without the need for probate. While this is also true for trusts, payable on death accounts are less expensive and easier to set up than trusts. For people with smaller estates, a payable on death destination may be more efficient than establishing a trust.

Drawbacks of Payable on Death Accounts 

Payable on death accounts do have certain issues, which often makes the expense of creating and funding a trust well worth it. The problems associated with payable on death accounts are as follows:

• Missed accounts: Payable on death designations only apply to one account, or a set of accounts, at a single financial institution. If you have multiple accounts at multiple banks, it is easy to overlook one or more, meaning these accounts will be subject to probate.
• No alternate recipients: You can designate more than one beneficiary on a payable on death account and they will each receive a certain amount or percentage of the account after you pass away. With the exception of IRAs and life insurance accounts, you typically cannot name alternate recipients. This means if you survive one of the beneficiaries named, the wrong person may receive the funds.
• No incapacity protection: The tools used in estate plans, such as trusts, can help you prepare not only for after your death, but incapacitation during your lifetime, too. The funds in a payable on death account are only transferred upon your death. If you become incapacitated during your lifetime, your loved ones may not be able to access the funds to pay for a nursing home, medical expenses, and other costs related to the incapacitation.
• Lack of creditor protection: Certain types of trusts can protect your property from being seized by creditors to repay debt you accrued during your lifetime. A payable on death designation does not offer this protection and so, trusts are sometimes a better option.

Our Estate Planning Lawyer in St. Petersburg Can Provide the Sound Advice You Need 

Our St. Petersburg estate planning lawyer at Legacy Protection Lawyers, LLP, knows that there is no one size fits all solution. We can advise you of your options, make decisions about your property, and execute your plan properly so you and your loved ones are protected. Call us now at 727-471-5868 or fill out our online form to request a consultation and to get the legal help you need.

Source:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0736/0736.html