Avoiding Probate without using a Trust; Joint, POD & TOD Accounts

An estate plan can be set up to avoid probate without use of a Revocable Living Trust. For persons with a small estate consisting of only a few assets, a trust is often not economical.

You can plan your estate by using joint and survivorship (JTWRS), POD (pay on death) and TOD (transfer on death) accounts which pass to the named survivor or beneficiary outside of probate. However, there are some drawbacks to this type of estate plan. The more accounts and assets you have, the more difficult it is to plan your whole estate in this way. If you change your intentions, you will have to rearrange all your accounts. This may involve trips to the bank, filling-out forms, correspondence with financial institutions and much other paperwork. Unequal changes in value can leave some heirs getting more than others, contrary to your intentions. For example, if you give Microsoft stock to one child and Ford stock to another, the stock values may change dramatically before you pass away leaving one child with a larger inheritance. Also, there have been many cases where a son or daughter has withdrawn funds in a joint account while their parent was still living. If the other person on the JTWRS account owes money to someone or is sued for a debt, this creditor can attach your funds in the joint account. These joint and POD accounts only avoid probate and do not avoid estate tax. If an estate plan utilizing joint and survivorship accounts is the chosen plan, then this planning should be done with the advice and assistance of legal counsel to assure that all accounts are properly set up to avoid Probate. My experience has been that very few people who try to set up their estate to avoid probate in this manner do so successfully. They almost always forget to set up some accounts correctly and, after they pass away, the family needs to open probate for just one or two accounts.

A Revocable Living Trust plan offers the following advantages over use of JTWRS and POD accounts: a) all assets are held under one “umbrella” which simplifies management of the assets; b) if a change in the estate distribution is desired, the grantor only needs to amend the Trust instead of re-arranging some or all of the asset beneficiary designations; c) no risk of changes in account values or balances altering the desired equal (or other proportionate) distribution to the intended heirs; d) the Trust can include a “spendthrift clause” which will protect the estate share of any beneficiary who is sued, gets divorced, files bankruptcy or has any creditor claims against their share of the Trust. A Revocable Living Trust is usually the better estate planning technique for avoiding probate for most people.