trusts vs. payable on death accounts
DESCRIPTION
In certain situations, passing funds to loved ones through a Trust is preferable to a Payable on Death Account.TRANSCRIPT
A bank employeestruck up a conversationwith me last week,questioning why some-one whose estate is nottaxable would need aLiving Trust. Wouldn’t itbe simpler to just makeall assets Payable onDeath (POD), so thefunds pass automati-cally to beneficiaries? Itwould avoid probate,too, she pointed out. Her question isunderstandable, and a common one,too. But, as I explained to her, thereare often good reasons to avoid PODaccounts and opt for a trust instead.Here are just a few:1. A trust is usually the best approachif you want to leave money to some-one who is disabled. Obvi-ously, the money must bemanaged by someone forthe person’s benefit. More-over, inheriting a lump sumcould jeopardize the per-son’s eligibility for public benefits.2. If a person’s estate passes auto-matically to all the children viaPOD accounts, it leaves too manyIndians and no chief. That’s a recipefor family chaos. There wil l befuneral expenses, income tax, andother outstanding obligations. Willall the kids pitch in a part of theirinheritance to pay the bills? What ifone of them decides he’s keeping allhis money and refuses to participate?With a trust, all the money goes intoone pot, and you’ve put someone incharge to pay the bills and distributewhat’s left over. Now, that’s simpler.3. If a minor child receives funds POD,a court guardianship is required toappoint someone to handle themoney. The child’s parents do notautomatically get to manage thechild’s inheritance.
4. Even if the POD ben-eficiary is over 18, youmay no t want thebeneficiary to get themoney outright. Thebeneficiary may havecreditors just waiting toleap on his inheritanceor the beneficiary maynot be fiscally prudent,or youmaywant to placesome strings on whenthe funds are received
and how they are used. For example,you may want the beneficiary toreceive funds only when reaching age30. Or you may want the funds usedfor certain purposes, like educationand medical expenses.In all the examples above, you
could use aWill, specifying that upon
your passing a Testamentary Trust isestablished. But when your funds arepassing through a Will, probatewill be required. That’s among thereasons a Living Trust is almostalways the better tool. I think thisclears things up for my friend at thebank, and for you, too.
Joseph S. Karp is a nationally certifiedand Florida Bar-certified elder law attor-ney (C.E.L.A.) specializing in the practiceof Trusts, Estates and Elder Law.
His offices are located at 2500 QuantumLakes Drive, Boynton Beach (561) 752-4550;2875 PGA Blvd., Palm Beach Gardens(561) 625-1100; and 1100 SW St. Lucie W.Blvd., Port St. Lucie (772) 343-8411.
Toll-free from anywhere: 800-893-9911.E-mail: [email protected] or websitewww.karplaw.com.
Read The Florida Elder Law and EstatePlanning Blog atwww.karplaw.blogspot.com.
Joseph S. Karp, C.E.L.A.
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Listen to Joe Karp and Anita Finley onSaturday, February 19, 2011 from 7:00-7:30 AM
on WSBR 740AM and on theInternet at www.wsbrradio.com.
POD Accounts Have Drawbacks