Splitting Accounts Among Heirs

Financial Planning Estate Planning and the Fool
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Very odd. I’ve worked with about a dozen entities (brokerage and annuity) and the claimants have never been required to wait for all claims to be submitted before paying any proceeds. Seems odd that Vanguard and Ameritrade would have such a requirement. Seems that such would place the institution in legal jeopardy if a claimant wanted to screw the other benes by never completing their process - or simply dragging their feet.

I agree with this. What would happen if someone died on February 1, 2020 with a 100% equity TOD account. And someone dragged their feet, causing the account to be frozen until April 1, 2020? Yeah, the stocks in the hypothetical account did come back, eventually, but many heirs want to spend the cash? Could such an heir sue the foot dragger for the loss in value of his/her portion during that Covid crash?

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Then I don’t understand why you don’t just use your will to specify that the account be split among the various heirs and let the Executor take care of it. - 2gifts

I could, I know that. But my two heirs are my responsible daughter and my not so responsible son. And they don’t see eye to eye on anything. I don’t want to add to that friction by my daughter the executor being hassled or challenged by her brother for anything he is due by way of the will.

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With the proper planning and the proper people, Transfer On Death is a great estate planning tool.

My experience has been that folks using TOD tend to do it as part of DIY estate planning without any guidance from anyone else such as an estate planning attorney to ensure that what they want to happen will be the result of their planning and actions.

In the case with which I am familiar, one unintended consequence was to effectively leave one of the heirs homeless, something that could have been avoided in a variety of ways.

Again, I will say that TOD is not for me given my experience. My kids are our heirs, and they will inherit most everything via the trust except whatever may remain in our IRA’s that gets paid to them as beneficiaries.

Others may make different choices, but for us, it makes no sense.

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Hawkwin writes:

It also comes with its own complications.

1. A Will can be contested.

Understood. But minimized when the will does not require splitting anything between multiple heirs. The executor is also the heir who will receive the only assets specified in my will - specifically real estate, vehicles, 100% of personal property.

2. A Will is not exempt from probate which can lock up the assets for a long time.

A minimal problem except for the PITA factor.

3. A Will is not a private transfer of wealth. Depending on the size of your estate, your heir many not want their windfall to be public record.

Not really a concern. My tax assessment is already public record.

4. Any and all tax implications are suffered by that one heir, with no ability to share such with any other intended recipients.

Step up in basis on the real estate. Investment Accounts split among heirs who will handle their own tax implications. Step up in basis on the after tax account. No tax to worry about with the Roth. Roth conversions will eliminate the TIRA in the next five years.

5. That one heir is under no obligation to follow your wishes after your passing.

If the split is as clean as I envision it, there will be no wishes for the executor or any heir to follow.

If your goal is to make the money available to a single individual and you have no care what they do with it after you are gone, you are likely better off retitling your real estate under TOD and make sure the rest of your estate (anything outside of a trust or TOD setting), is below your state requirement for probate - usually allowing one to file a Small Estate affidavit or other similar, quicker process.

This is something I will have to check into. It was my understanding that assets transferring under beneficiary designations would avoid state interference. The investment accounts will in total be in the $2M range, more if I live longer. This is Texas however that matters.

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By the way, I was pleasantly surprised that TDAmeritrade used common sense. What am I talking about? All documents were uploadable via their online portal. The disclaimer did have to be notarized, but there was no “Medallion Signature” nonsense, and they accepted a scanned copy uploaded. Another part of the estate involved a small $25,000 account (the TDA account was more than $1M) and required weeks of paperwork etc. TDAmeritrade really did a wonderful 2021-era job of handling this estate distribution.

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If you do what is suggested above (with the bank account), be sure to that there is something in your will or trust that equalized the other heirs who won’t get the bank account. At the very least, beware that the account co-owner will get that account above and beyond whatever anyone gets via will or TOD.

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. If you trust one heir to be be executor of your estate, you likely will trust that person enough to be placed as a co-owner of at least one personal checking account. This allows seamless access to the account, regardless of death or incapacitation.

Once again, I will point out that there can be unintended and potentially awful consequences with some of these actions. For instance, making the Executor or anyone else a joint owner on an account means that account will belong to them upon the original owner’s death, and it is theirs to do with as they wish. It no longer belongs to the estate, and they do not have to use that money to pay any of the estate bills such as final expenses or legal fees. In the estate to which I have referred in previous posts, the Executor was the beneficiary of the deceased’s life insurance policy which the deceased thought would then be used to pay final expenses and estate taxes. Except that money belonged to the Executor who was not one of the heirs and had no reason to give any of that money back to the estate, so she kept it, and used the proceeds from the only piece of real estate that had been sold to pay all those expenses instead.

As has also been pointed out, since the joint owner would now own that account, there may be an unequal distribution of assets unless provisions have been made in some other fashion to consider that account and ensure that things are evened out for the rest of the heirs.

For me, that’s too much work and too much chance that something gets forgotten or that there are other unintended consequences. I much prefer to do it all via the will and the trust. But that’s just me.

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ensure that things are evened out for the rest of the heirs. - 2gifts

Thank you and others for your perspectives. But just saying, what you write above assumes that equality is an objective.

One of the struggles I had when deciding a framework for my estate plan was an equal split or not between responsible daughter and irresponsible son. I decided on a split favoring the daughter who also will be the executor. The split would be 100% of real estate and personal property to her and then the investment accounts 50-50 between the two of them through TOD’s and beneficiary designations. The result is a rather simple will and no joint ownership of anything. And I am free at any time, to tweak the investment split from 50-50 to 70-30 or other ratios as life unfolds which is basically observing to what degree my son can right his ship.

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Different heirs have different needs. Some assets are difficult to divide and have no equivalents (or may have different values years from now when the time comes).

Equal split is most fair. But if otherwise, its best to discuss with the heirs and explain your thinking.

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Equal split is most fair. - pauleckler

True, all other things being equal. But does “equally deserving” have a seat at the decision making table?

Consider a case where one heir has spent years caring for an aging parent, while the other was a non participant. Not my situation, but “equality is fair” can actually be not fair to some heirs and at a certain level not fair to the decedent. IMHO, of course.

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And what about “need?”

You love your kids, but suppose one is financially well off, but another struggles to make ends meet and provide for his or her family?

Trini

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And what about “need?”

You love your kids, but suppose one is financially well off, but another struggles to make ends meet and provide for his or her family?

I’d still be inclined to split equally. Why punish the kid who succeeded? Why reward a kid who maybe struggles because he/she made bad choices? I get it that there are lots of circumstances that cause people to succeed more or succeed less. Some of it’s luck, some is genetic, some choices. But I’d be reluctant to give or leave one kid more than the other. If a wealthy child wishes to disclaim his/her inheritance in favor of a less wealthy sibling, that’s his/her choice. It’s not going to be mine.

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I don’t know what the right answer is but sometimes parents doing things differently. A close friend of mine was the executor of his parents estate and knew ahead of time his parents plans but didn’t tell his siblings (figured it wasn’t the proper thing to do). His parents decided to skip their children and gave their money to the grandchildren equally.

Apparently that didn’t sit well with one sibling. I think the 3 children had 3, 2 and 1 kids with the sister only having one. I suppose she might have be worse off financially.

Without knowing the details it is hard to speculate. Hate to imagine the dynamics of a family that had divorces,remarriages, etc.

My parents went 50/50 on everything.

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If other than equal shares to children, its important to sit down with them and explain thinking.

The only hard rule is you cannot disinherit a spouse. For others you can do whatever you like. Unhappy daughter might go to court to get will voided to let state distribution rules apply. That could result in long delays and big legal bills.

Generation skipping makes sense to some due to people living to age 90. Children inherit when they are retired while the grandchildren may have current needs paying off mortgage, educating children, funding retirement, etc.

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You love your kids, but suppose one is financially well off, but another struggles to make ends meet and provide for his or her family?
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I’d still be inclined to split equally. Why punish the kid who succeeded? Why reward a kid who maybe struggles because he/she made bad choices? I get it that there are lots of circumstances that cause people to succeed more or succeed less.

As parents, we did not use money to reward or punish our children’s behavior. Did we love them equally? I guess; but they were very different people, then and now. Did we spend money on them equally? No. Because they had different needs, and different interests that we wished to encourage. And what if they wish to pursue careers that require levels of education?

When it comes to estate planning, you might not think of it as reward and punishment, as much as using YOUR money (it isn’t theirs until you make it so) for the benefit of YOUR whole family.

That said, our oldest daughter, who had the greatest health problems and other needs, has predeceased us, and so our two remaining children will now share equally in what remains in our living trust.

Bill

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The only hard rule is you cannot disinherit a spouse. For others you can do whatever you like.

Yes, but for a second or subsequent marriage you can use a prenuptial agreement to limit what he/she gets at your death. And if you can’t work that out, then maybe the relationship isn’t as romantic as you thought.

Bill

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38

My intent is to use a will to transfer 100% of real estate and personal property on one heir. No joint ownership of anything. That one heir can decide when, if, and how much to sell any of that part of my estate without having to get the approval of any other person. Sole discretion avoids conflict.

BHM

Keep in mind the will is a probate document and deals with the assets held in probate. TOD/POD passes estate assets outside of probate. A will, unlike the way Hollywood likes to portray it, in a well designed estate, will have little importance and, assuming no minor children, will be used to distribute ‘fee simple’ personal items such as tools, sporting equipment, books, guns, etc. With large asset holdings, the will is a relatively weak document that can be challenged by heirs.

Having been witness to quite a few estates, the name of the game is to keep as many assets as is feasible OUT of probate, as the probate process can be long and expensive to manage.

What I have seen along the lines you describe is for liquid accounts (bank, brokerage), the single owner (usually a widow/widower) adds a trusted child, usually (but not necessarily always) the oldest daughter as a joint account owner. At death, this child inherits and owns all assets in the accounts. Using these $$ to settle the estate obligations, once completed, the owner then divides the accounts evenly with the siblings and transfers their portion to them as ‘gifts’. But as simple, fast and inexpensive as this process is, it relies 100% on trust, and any good estate planning attorney will tell you NOT to do this, as all of those account assets, on death, belong 100% to the joint owner.

I suspect the process of TOD/POD is both state and institution specific. My experience with implementation of TOD/POD is the institution requires the named % beneficiary to provide a death certificate and in-person verification of identity, and then transfers their TOD/POD % to them. The mechanism for doing this, particularly with non-cash assets, such as a brokerage account, will likely be institution specific and should be understood and explained by the owner to heirs to avoid ‘surprises’.

Named beneficiary accounts, such as retirement plans, IRAs and insurance company accounts such as deferred annuities, are usually pretty easy to transfer. A separate account is usually set up and titled as the original owner ‘deceeased’ for benefit of ‘new owner’. All that’s usually required for each beneficiary is a death certificate and individual in-person verification of identity and then the beneficiaries % is transferred to the inherited account.

BruceM

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39

Keep in mind the will is a probate document and deals with the assets held in probate. TOD/POD passes estate assets outside of probate. A will, unlike the way Hollywood likes to portray it, in a well designed estate, will have little importance and, assuming no minor children, will be used to distribute ‘fee simple’ personal items such as tools, sporting equipment, books, guns, etc. With large asset holdings, the will is a relatively weak document that can be challenged by heirs.
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Named beneficiary accounts, such as retirement plans, IRAs and insurance company accounts such as deferred annuities, are usually pretty easy to transfer. A separate account is usually set up and titled as the original owner ‘deceeased’ for benefit of ‘new owner’. All that’s usually required for each beneficiary is a death certificate and individual in-person verification of identity and then the beneficiaries % is transferred to the inherited account.

BruceM

Thank Bruce. Thought provoking advice. I am familiar with TOD’s and have them established for after tax accounts but never considered that option for real estate. I did a quick internet search and TOD deeds are available in Texas. The process seems pretty straight forward especially with me being single, no mortgage and only a single heir for the real estate.

Another loose end I thought I had is vehicles since there are titles that are in my name. Another internet search turns out Texas has a process whereby I fill out an application for a new title and can make a beneficiary designation that will be recorded on the new title.

It sounds like a will is still called for but all it need to cover is miscellaneous personal property. TOD’s and beneficiary designations for everything else. This all sounds very appealing to me.

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It sounds like a will is still called for but all it need to cover is miscellaneous personal property. TOD’s and beneficiary designations for everything else. This all sounds very appealing to me.

Remember to leave enough assets in your probate estate to do things like pay your final expenses and any outstanding bills.

You may also want to at least discuss with an estate planning attorney if doing all of this will accomplish what you want without some unintended consequences. They may also point out things that you have not considered that may impact your plans.

You won’t be here to deal with it after your death, but you want to be sure that you are not leaving a bigger mess to be cleaned up through all of these gyrations.

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You may also want to at least discuss with an estate planning attorney if doing all of this will accomplish what you want without some unintended consequences. They may also point out things that you have not considered that may impact your plans. - 2gifts

Oh yes, I plan to just be sure everything is street legal. And a will is necessary for personal items and any pour over elements so an Estate attorney will definitely be part of the picture. Also I want to establish that attorney relationship so that my executor, my daughter, has someone she can count on for advice and process assistance.

I have a relationship with an attorney whose practice covers everything, family law, probate, criminal, soup to nuts. I used him on a civil matter and was satisfied with his service but given that he has such a diverse practice, I wonder if I should seek out an Estate specialist.

My estate plan is pretty simple so maybe a generalist is fine for my simple needs.

I have asked my friends if they have an estate attorney they could recommend and it is surprising that nobody, I mean zero, does. It seems everybody I know agrees they need a will but nobody has done anything about it. Right now that is where I am but I an dedicated to tidying up this loose end.

If I don’t use the attorney I used in the civil matter, the I am left with picking a name out of the phone book which is a crap shoot.

Thoughts and opinions welcome.