Using Joint Accounts and Beneficiary Designations in Florida to Avoid Probate
An easy way to avoid probate on bank accounts in Florida is to use Transfer on Death (TOD) and Payable on Death (POD) designations. Alternatively, joint account ownership is often used for this same purpose. All of these designations create automatic transfers upon death for bank accounts. Using these strategies not only simplifies the transfer process but also provides peace of mind, knowing your loved ones will receive assets without unnecessary delays.
Creating an estate plan that facilitates transferring assets outside of probate can significantly streamline the transfer and enhance the value passed on to your loved ones. Additionally, non-probate transfers typically do not involve public notice, keeping your personal matters private. This confidentiality can be particularly valuable for individuals who wish to maintain their family’s financial matters out of the public eye. However, there are also some potential downsides to each of these account designations. In this article, we explore joint account ownership and beneficiary designations for bank accounts and discuss their pros and cons for avoiding probate administration in Florida.
Joint Assets with Rights of Survivorship in Florida
Property held with rights of survivorship automatically transfers to the other owner(s) upon the death of one owner. Because of this, rights of survivorship can be used as a tool to avoid the probate process. Thus, it is important to understand whether any jointly held assets is held with rights of survivorship.
In Florida, to determine whether an asset will transfer by right of survivorship, you must look at how the asset is titled. When property is “jointly owned,” that property is held in the name of multiple people at the same time. When "right of survivorship" is attached to certain types of joint ownership, the asset automatically transfers to the surviving owner upon the death of the other. In Florida, this type of ownership is called a "joint tenancy." For married couples, there's a special category in Florida called "tenancy by the entirety" which includes the right of survivorship. On the other hand, jointly owned property without the right of survivorship is classified as a "tenants in common." There are a number of differences between these categories (including asset protection consideration), but this article focusses only on the differences related to rights of survivorship.
To understand how a right of survivorship works, consider the following example: If you own a bank account that you wish to leave to your daughter after you pass away, you could add your daughter to the bank account as a joint account holder with rights of survivorship. Then after you pass away, your daughter would become the full owner of the account without probate. Similarly, if you own real estate that you want to leave to your daughter, you could record a deed transferring the property to yourself and your daughter as joint tenants with right of survivorship. Upon your passing, full ownership would automatically transfer to your daughter, bypassing probate.
However, a big disadvantage of joint ownership is that the co-owner generally has equal rights to use and access the asset during your lifetime. For example, with a joint bank account, either account holder can withdraw money or write checks. This access can sometimes lead to conflicts, especially if the co-owner mismanages the funds or if there are disputes about how the money is used. Despite this, if you fully trust the co-owner, joint ownership can be a practical estate planning tool. If you use this tool for real estate, it is important to ensure the proper form of joint ownership is used. Problems can arise if mistakes are made in this process.
However, in many cases, using beneficiary designations, a trust, or a lady bird deed make more sense than using joint ownership. These alternatives often provide more control and specificity regarding asset distribution, reducing potential family conflicts. Joint ownership may be simple, but it can and sometimes does lead to unintended consequences.
Often, someone will add an adult child to a bank account to help manage the funds, with both persons now listed on the account jointly with rights of survivorship. The idea here is to give access so that the child is able to take care of the original account holder, similar to someone using a power of attorney document. The original account holder may have three other children that are listed in the last will and testament as receiving assets equally. In reality though, when the original account holder dies, the surviving child will likely inherit the entire account because section 655.79 of the Florida Statutes creates a legal presumption that the joint account holders intended that upon the death of one of them all rights, title, and interest in the deposit account will vest in the survivor. The joint ownership will likely override the provision in the will and a family fight is now likely.
Therefore, joint account ownership is not always the best solution. It can be used appropriately, but sometimes other solutions are better-suited.
Transfer-on-Death (TOD) and Payable-on-Death (POD) Designations
Payable on Death and Transfer on Death designations in Florida allow assets to transfer directly to a named beneficiary when the owner dies, bypassing the need for probate. The term “Payable on Death” (POD) is commonly used for bank accounts, money market accounts, and CDs, while the term “transfer on Death” (TOD) typically applies to stocks, bonds, and brokerage accounts. Practically speaking, TOD and POD accounts function the same way; after the owner's death, the asset is transferred to the beneficiary without going through probate.
If an account holder names a beneficiary, then when the account holder passes away, beneficiaries must provide specific documents, such as a Death Certificate and a valid ID, to verify their identity and relationship to the deceased. This protects against unauthorized access to the deceased's assets. The bank (or other institution) is obligated to transfer remaining funds based on its contractual relationship with the account holder, which includes distributing funds after the account holder's death.
The primary difference between POD/TOD and joint ownership with the right of survivorship is that a POD or TOD beneficiary has no rights to the asset during the lifetime of the owner. For example, if a bank account is titled "Jennifer Smith and Sandy Smith" with joint ownership, both can access the funds. However, if the account is titled "Jennifer Smith p/o/d Sandy Smith ," then Sandy has no claim to the funds until Jennifer’s death. The same is true of Sandy’s creditors, who might be able to establish an interest in the account during Jennifer’s life if the assets are held jointly, but assets titled “Jennifer Smith p/o/d Sandy Smith” will not be available to Sandy’s creditors so long as Jennifer is alive.
In Florida, POD accounts can name multiple beneficiaries, who will equally share the funds upon the account holder's death unless otherwise specified. This flexibility allows for customized distributions according to the account holder’s wishes. POD designations can also be made in favor of entities, allowing for charitable donations outside of probate. Additionally, as noted below, trusts can be named as POD beneficiaries.
TOD designations can also be important for retirement accounts in Florida. IRS rules sometimes allow for favorable tax treatment when an account is owned by a "natural person." If a retirement account becomes part of an estate, it loses eligibility for extended withdrawals, which can lead to significant tax burdens and potential creditor claims. Considering the tax implications of asset transfer is often important, as it can greatly affect the overall value passed on to heirs.
While some states allow TOD designations for real estate, Florida does not. However, Florida recognizes "Lady Bird deeds" (also known as enhanced life estates). A Lady Bird deed allows the life estate owner to retain full control over the property, including the right to sell or use it, without liability to the future interest holder. Upon the owner’s death, the designated beneficiary automatically receives the title, avoiding probate. Thus, a Lady Bird deed functions similarly to the POD and TOD designations on accounts.
In addition to avoiding probate, POD and TOD designations are straightforward and cost-effective. Setting them up usually involves filling out a simple form with your bank (or other institution holding the account), and you can change or revoke the designation at any time. This adaptability is a significant advantage for those whose circumstances may change over time. However, these designations lack the customization needed for more complex estate planning, such as establishing a special needs trust. For that, you would need to use a will (which involves probate) or opt for a more flexible estate planning tool like a revocable living trust.
Beneficiary Designations vs Revocable Living Trusts in Florida
A revocable living trust is an estate planning tool in Florida that allows you to avoid probate while retaining control over your assets during your lifetime. It also enables you to specify how your assets will be managed and distributed after your death. This control can be particularly beneficial for those with unique family dynamics or specific wishes regarding asset distribution.
To establish a living trust, you should have your attorney draft a "declaration of trust," which is a document that outlines the trust's management framework. The declaration of trust typically would appoint yourself as both the trustee (the person managing the assets) and the beneficiary (the person benefiting from the assets) during your lifetime, and designate a successor trustee to manage the trust after your passing.
Once the trust is set up, you transfer your chosen assets into it. For real estate, this often involves transferring the deed into the trust's name. For financial accounts, you can re-title them under the trust’s name (e.g., "Jimmy Chitwood as Trustee of the Jimmy Chitwood Living Trust"). Although the trust technically owns the assets, as the trustee, you retain full control over them, including the ability to transfer them back to yourself and dissolve the trust, hence the term "revocable living trust." Alternatively, you can use a POD or TOD designation on an account and list your revocable living trust as the beneficiary, so that the account transfers into trust without probate after you pass away.
The declaration of trust also contains instructions for your successor trustee on how to handle the assets after your death. For example, you can have your successor trustee distribute assets equally to your children. Alternatively, you can have the trustee invest the assets for the benefit of your children (or for whomever else you prefer). The key advantages of a revocable living trust are that you maintain control over the assets during your life, the assets bypass probate, and you have the flexibility to decide how and to whom the assets will be distributed.
Accounting For Non-Probate Assets in Florida Estate Planning
It's essential that any strategies for transferring assets outside of probate in Florida are carefully coordinated with your overall estate plan. Integrating the various elements of your estate plan can lead to a more cohesive strategy that reflects your values and priorities. However, any inconsistencies or confusion among estate planning documents can lead to delays, increased costs, and potential litigation, which defeats the purpose of the planning itself. Therefore, during the estate planning process, it's crucial to clearly identify assets as probate or non-probate.
For example, suppose you create a will stating that your estate should be divided equally between your three adult children. However, you also have a large investment account with a transfer-on-death (TOD) designation naming one child as the beneficiary. Upon your death, the TOD designation takes precedence, meaning the account will not be part of your probate estate. This results in the TOD beneficiary receiving a larger portion of your overall assets, while the equal split specified in the will only applies to probate assets. If this outcome aligns with your intentions, then there is no issue. But if your goal is a truly equal distribution, you'll need to address the TOD account within your estate plan to ensure fairness. Clarifying these details can help prevent costly and damaging disputes between your heirs.
When all is said and done, your goal should be to transfer your assets efficiently and simply as possible. Establishing a clear and well-communicated plan can increase the likelihood that your wishes are honored and your family is not burdened with unnecessary costs and delays. For many people (including most of our estate planning clients), this involves a combination of strategies. For example, a single estate plan might involve a last will and testament, a trust, and some POD designations. However, the optimal approach varies depending on individual circumstances. Consulting with an experienced Florida estate planning attorney is key to developing a good plan tailored to your specific situation and your loved ones' needs.