Estate Planning Thoughts on Transfer or Pay on Death Instruments v. Living Trusts
As an attorney that practices Estate Planning, I am frequently asked the difference between a Transfer or Payable on Death Account/Deed and a Living Revocable Trust. Both avenues provide for property disposition upon death and many people ask, “if all my accounts etc., are transfer on death or payable on death, why do they need a living trust?”
A Transfer on Death designation on a bank account or other type of account, or for real estate, a Transfer on Death Instrument/Deed (TODI) is a streamlined way to ensure that your property passes efficiently upon your death. Payable on Death designations are most commonly used for bank accounts. Another way to deal with bank accounts is simple to have joint ownership of the account so that when one holder dies, the other automatically gains access to the account. A TODI is a type of deed that must meet certain rigid standards and must then be recorded with the Recorder of Deeds to be placed in the chain of title.
Assets that pass pursuant to a Transfer on Death designation will pass outright to the beneficiary named. However, if that beneficiary were in the middle of a lawsuit, divorce or bankruptcy, the assets passing outright to the beneficiary may be at risk to prospective judgment creditors, ex-spouse or bankruptcy claims. That’s where a Living Trust may prove handy.
While it is true that one of the benefits of a Living Trust is to transfer accounts on death or real property, without probate, there are other sound reasons for having a Living Trust. One of the most overlooked reasons for having a Living Trust is the protection it provides in the event of the incapacity of the Grantor. If the creator of the Trust becomes physically or mentally incapacitated, a Successor Trustee can step in and manage the affairs of the Trust for the benefit of the creator of the Trust. As a result, there is no need to establish a Guardianship or Conservator over the creator of the Trust to manage the assets held in the Trust. A Revocable Living Trust is also a flexible document that can be changed through time by means of an amendment.
Living Trusts may also be used to shield assets following the death of the creator of the Trust. For example, the Trust Agreement may provide that upon the death of the Trust creator, the assets would remain in the Trust for the health, education, maintenance and support of the beneficiary. This type of Trust is commonly referred to as a Continuing Support Trust. A Continuing Support Trust may be used to protect assets from the beneficiary’s judgment creditors, ex-spouse, or claims in bankruptcy.
With over 30 years’ experience in advising families and businesses on estate planning issues, let Boznos Law work with you to ensure you are ready to meet the challenges posed by the ever changing estate planning landscape. Make certain your estate plan accurately reflects your desires. Call Bill Boznos today at (630) 375-1958 or contact us at www.boznoslawoffice.com/contact-us through our website at www.boznoslawoffice.com.