Smart Estate Planning: Avoiding Costly Asset Handling Mistakes
When it comes to estate planning, one of the most common topics people ask about is how to handle accounts and manage assets. If you're like many Gen Xers or Millennials juggling careers, family, and planning for the future, understanding account ownership and asset management is crucial—not just for convenience, but to ensure your loved ones are protected and your wishes are honored.
This guide will break down the essentials of asset management, ownership structures, and how to organize your accounts to avoid unnecessary complications for your family. Let’s start with some frequently asked questions.
Q: What’s the difference between joint ownership and transfer-on-death (TOD) designations?
Think of joint ownership like a shared Netflix account. Both owners have full access at any time. When it comes to our joint bank accounts or real estate, if one owner passes away, the other automatically inherits the account or property. This setup is simple and convenient but comes with risks:
Full access for both owners means one party could drain the account without your consent.
Creditor risks: If the other owner has debts, creditors could go after your shared assets.
TOD or payable-on-death (POD) accounts, on the other hand, keep you in the driver’s seat during your lifetime. Your designated beneficiary has no access to the account until after your death, and the transfer bypasses probate court. While this method avoids certain risks, remember that:
Whoever you name as a beneficiary will inherit the account, regardless of family dynamics.
Naming a fiscally irresponsible person could lead to unintended consequences.
Something to Keep in Mind
Here’s something to keep in mind: When you name a joint owner or designate a beneficiary on an account, that individual will inherit all the funds after you pass away—regardless of their age, financial habits, or the dynamics within your family. This can sometimes lead to tension among family members, especially if the inheritance feels unfair or unexpected. For instance, it’s not uncommon for siblings to clash when a caregiver sibling inherits everything in a parent’s account or gains sole ownership of a property, leaving others empty-handed. If you’re concerned about creating fairness or protecting your assets from potential conflicts, let’s explore your options together. Schedule a call with me to discuss how we can structure your plan to meet your goals.
Q: Do I still need a trust if I have joint ownership or TOD/POD accounts?
Yes, in many cases, a trust is the safer, more flexible option. Here’s why:
Protection against creditors: Joint accounts expose assets to risks if the other owner has financial trouble. Imagine a grandmother sharing her bank account with a granddaughter. When the granddaughter’s husband’s business defaulted on a copier lease, creditors garnished the grandmother’s account.
Avoiding unintended outcomes: TOD/POD only works after death—not if you become incapacitated. Additionally, it doesn't handle unexpected situations, like both you and your beneficiary passing away in the same accident.
Potential Pitfalls With Joint or TOD/POD Accounts
When relying on joint ownership or TOD/POD designations instead of a trust, it’s important to be aware of potential pitfalls. For example, jointly owned property can be vulnerable to the creditors of either owner. One of my clients, a grandmother, added her granddaughter as a joint owner on her bank account. Unfortunately, when the granddaughter’s husband defaulted on a business copier lease, the creditors obtained a judgment against him. Because the granddaughter was a joint owner, the grandmother’s account was garnished to satisfy the debt—an outcome she never anticipated.
If you’re considering TOD or POD designations to avoid risks like this, be mindful that these designations only activate upon death and don’t account for incapacity or unexpected events. For instance, imagine a grandmother uses a TOD designation to leave her house to her grandson. If they are both involved in a car accident and the grandson passes away first, the house would revert to the grandmother’s estate when she passes shortly afterward. Without time to update the TOD designation, the property would go through probate and be distributed to the grandmother’s next of kin under state intestacy laws—likely not what she intended.
Trust Solution
To avoid these kinds of issues, a trust offers a more secure and flexible solution. It ensures your assets are distributed according to your wishes while protecting them from creditors, unexpected events, and the probate process.
A trust ensures seamless management of your assets, protects them from creditors, and allows you to specify exactly who gets what—no surprises.
Q: What happens to retirement accounts and life insurance policies after death?
These accounts generally pass directly to the beneficiaries you’ve named, bypassing probate. Those beneficiary designations will take precedence over any gifts of those assets you name in your will. So, it is important to make sure you regularly check your beneficiary designations. You want to make sure those match with your wishes in your estate plan.
You need to keep those beneficiary designations up to date. Why? Well, one, you want to make sure you have a beneficiary name. An estimated $1.1 billion in life insurance benefits go unclaimed each year because beneficiaries weren’t updated. Plus, if there are no beneficiaries named, then the company will. make the check payable to the deceased person’s estate. And, now that person’s loved ones have to go through probate. Probate costs loved ones unnecessary time and money.
Assets May Not Go Where You Wanted
Also, you want to make sure your named beneficiaries are still the same ones you want to receive those assets. I had three widows last year who came to see me. All three had second marriages and their respective spouses had died. One widow’s husband left his pension to his ex-wife; one widow’s husband left his life insurance benefits to his ex-spouse and the third’s husband left his investment accounts to his ex-wife. All of us knew this was not what any of the husbands had intended or would have wanted to happen. But, because the husbands had not changed their respective beneficiary designations before they died, there was nothing I could do for these widows. Talk about uncomfortable conversations and added heartbreak.
Minors
Avoid naming minors as beneficiaries: If you name a minor as a beneficiary and then die, the assets will need to be held until the minor turns eighteen (18) in North Carolina. So, not only do the assets have to go through probate, a guardianship usually has to be opened. The Court then appoints a person, usually the parent, but not always, to be the guardian. As the guardian, he or she is responsible for determining how much, and for what purpose, funds are given to the minor. Plus, every year, the guardian will have to file an accounting with the court showing how the funds were used until the minor turns eighteen (18). This court oversight can be expensive and time consuming.
Q: Why is an asset inventory so important?
Without an up-to-date inventory, your loved ones may struggle to locate and claim your accounts. According to the National Association of Unclaimed Property Administrators, 1 in 7 Americans has unclaimed property, with a total of over $77 billion sitting idle.
I like to use the example of my dad as to why it is so important to do an asset inventory. While my dad is still living, he had a massive stroke 21 years ago, causing him to lose his ability to speak and paralyzing his right side. Unfortunately, he handled all of the assets, including investments. And, he was not very organized. So, it took my mom, brother and sister three (3) years to track down all of his assets. This was very stressful and time-consuming. Had we had an asset inventory, we would not have had to undergo all of this.
This is why I always create an asset inventory for my clients at the beginning of our relationship. And, we update that spreadsheet every three (3) years when I meet with them for an estate plan review. Surprisingly, this is not part of a lot of estate planning lawyers planning or legal insurance plans.
Creating a detailed inventory ensures your assets go to the people or charities you care about—not your state’s unclaimed property fund. And, it saves you time and money.
Q: How often should I review my accounts and asset inventory?
Life happens, and things change. You should review your asset inventory and beneficiary designations every year. And, definitely rview them whenever major events occur, such as:
Marriage or divorce
Birth or adoption of a child
The death of a beneficiary
Buying or selling a significant asset
Moving to a new state
When you work with me, you won’t have to remember this on your own. I’ll proactively remind you to update your inventory and beneficiary designations and help make it as easy as possible for you to take action.
Q: What’s the best way to organize and store my asset information?
Your plan should be clear, organized, and secure. Avoid placing sensitive details like passwords in your will, as it becomes public record when you die. Instead, use a secure system and ensure your executor or trustee knows how to access it. We can discuss option for the best way to do this.
How We Can Help
As your trusted estate planning partner, I help you create customized Life & Legacy Plans. Together, we’ll:
Build a comprehensive inventory of your assets.
Help you choose the right ownership structures to protect your assets.
Coordinate your beneficiary designations
Keep everything updated with regular reviews, ensuring your plan stays relevant as life evolves.
Take control of your future today and gain peace of mind knowing that your assets will go to the people you want in the way you want. Schedule a complimentary 15-minute consultation to learn how we can make estate planning simple, organized, and stress-free.
Click here to schedule your consultation.
We Are Here to Help
By planning ahead, you can protect your loved ones, preserve your hard-earned assets, and enjoy peace of mind knowing your legacy is secure. We are here to help you create an estate plan that will work for you.
