As our last blog article discussed, there are many types of beneficiary designations or ways to hold assets that avoid probate. Prior to the invention of IRAs and 401Ks, almost all assets were either owned singularly or jointly. In Texas, as a general rule, joint assets do not automatically pass to the other. Singular assets always pass through an estate.
Life insurance has always been a notable exception. Life insurance was payable to a beneficiary, usually not the estate itself. When tax deferred accounts (IRAs, 401Ks, and 403Bs) came along, because the law’s requirement that the account be designated to a particular person, all of these accounts had beneficiary designations usually, someone named a primary beneficiary and a successor, if the primary was deceased.
Since then, we have popularized all sorts of ways to hold assets that pass outside of probate. This sounds like a good thing, but it can create a host of problems. We will discuss that in a future blog article.
Other than naming beneficiaries, an account that is jointly owned can be “payable on death”, “transfer on death”, or a “joint account with right of survivorship.” There are legal distinctions between these three designations – POD, TOD, and JTROS – but simplistically, the survivor of the two persons on the account owns the account.
In Texas, for the past 15 or more years, it is virtually universal that any bank account with two signers is a joint account with right of survivorship. This is often problematic because one person owned the money and simply wanted to add another person as a convenient signer, usually a child to assist an elderly parent. Unknowingly, the parent made a gift of all of those funds to that one child, who often has not generously shared the assets with the other beneficiaries of the estate.
Our next blog article will discuss the more common problems we see with beneficiary designations.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.
