1. What is the importance of bank account titling?
In the context of estate planning, the way an account is titled is critical. The choice often determines who will inherit the account after the account owner’s death. In many cases, the account owner’s will or living trust is irrelevant.
For example, consider an account that is titled jointly between Parent and Child A. If Parent dies, Child A inherits the account regardless of whether Parent’s will directs equal distribution to Child A and Child B.
2. What are the ways to title a bank account?
Washington law (RCW 30A.22.100) permits several ways to title a checking account, savings account, or Certificate of Deposit, whether at a bank or credit union:
- Individual account. This type of account is owned by an individual person. If the owner dies, the account is subject to probate and would be distributed in accordance with the account owner’s will.
- Individual account with pay-on-death designation. Also owned by an individual person, this account is paid directly to the named beneficiary upon the account owner’s death.
- Joint account without right of survivorship. This type of account is owned by two or more persons. If one of the owners dies, the surviving owner or owners still have access to the account, but the portion contributed by the deceased owner is subject to probate.
- Join account with right of survivorship. Also owned by multiple persons, this account passes without restriction to the surviving owner or owners. When there are no surviving owners, the account is subject to probate and would be distributed in accordance with a valid will of the last owner to die.
- Joint account with right of survivorship and pay-on-death designation. This type of account adds a pay-on-death designation, which pays the account directly to the named beneficiary when all account owners have died.
3. What is a Pay-on-Death Designation?
A pay-on-death (“POD”) designation is a probate avoidance technique that can be added to the titling of a bank account. If used, the bank will have a record of the death beneficiary for the account. Upon the death of the account owner, assuming the named beneficiary is alive, the funds in the account belong to the beneficiary. If there are multiple beneficiaries, then the funds in the account belong to the named beneficiaries in equal amounts. If there are no surviving named beneficiaries, then the POD designation is disregarded and the funds in the account belong to the estate of the deceased owner; i.e., subject to probate.
4. May an Investment Account have a Pay-on-Death Designation?
An investment account may have a POD designation, although it is properly described in Washington as a transfer-on-death (“TOD”) designation.
5 Why not name Child as joint owner of all accounts owned by Parent?
Many people choose to add a child as joint owner of a bank or credit union account during their lifetime. This is a poor estate planning strategy because:
- Exposes the parent’s assets to the child’s creditors. If the child is sued, the child must disclose the joint account to the court. The burden falls on the child to convince a court that the child contributed nothing and that the account really belongs to the parent. Similarly, the account would be a reportable asset if the child filed for bankruptcy.
- Parent loses full control of the account. Although intended to facilitate a child helping the parent, a controlling child or the jealousy of other siblings could spoil the arrangement. Similarly, if the child needs money, there is nothing to prevent the child from taking it without permission.
- Assumes the child is a saint. The parent can only hope the child “does the right thing” and uses the joint account to pay estate bills and then shares it with other beneficiaries as directed in the parent’s will or living trust. The child’s attorney would be correct under the law to counsel the child otherwise.