Payable on Death

Just about every human being will make the same choice between these two options:

1) Pay a California attorney money;


2) Not pay money to said California lawyer.

As an attorney practicing since 1994 I get that. Most of us would rather do stuff ourselves than pay anybody but especially lawyers. I will not delve into why that is but I am sure there is a lawyer joke there somewhere!

In fact many people set up, or think they set up, payable on death designations to try avoid paying money to those evil lawyers. However, is this really the smart thing to do?

The problems are many. This is meant to be a short blog so won’t go into all the details. Let’s talk about some biggies though.

* If the assets are set up by payable on death then how does one take care of mom/dad/whoever if they become incapacitated? This money is set to pay on death not incapacity. Yes, you can set up a joint account but then the account is subject to the kids creditors and can easily be stolen, I mean borrowed, if the kid needs the money. Using a power of attorney is the other answer but most banks do not honor general powers of attorney.

* Another huge issue is people dying out of order. It happens. If the child dies before mom and dad and mom and dad forgot they had the POD designation or just can’t make a change (incapacity) then you could create a probate after death.

* The last big issue is taxes. So often clients set up a joint ownership on a bank account, stock account or real estate.  The problem is there is only a step up in tax basis (capital gains tax) for the 1/2 that transfers at death. This can create a huge tax problem for assets, like stock, bonds and real estate that have appreciated.

The bottom line is meet with an experienced estate planning attorney and make sure your estate is set up in the best possible way for you and your loved ones!


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