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Wednesday
Jun172015

How His, Hers, and Ours Accounts Can Really Cost You!

Many married couples make the decision to keep a bank or brokerage account in their own name without the other spouse having any access or visibility into the use of those accounts. Some folks call these "fun money" or "mad money" accounts and they are perfectly okay for married couples to have for purposes of their own choosing (presumably not for nefarious purposes though!).

The first problem arises in the event of the disability or incapacity of one spouse, as the other spouse will not have access to these accounts unless they have a valid Durable General Power of Attorney--and know about the account in the first place! Without a Power of Attorney the non-incapacitated spouse may have to go to court to get access to the other spouse's money if they need to for any reason. 

The second problem is in the case of death of a spouse with a "fun money" account in their own name. In the absence of a comprehensive estate plan most couples rely on joint ownership to transfer assets from the deceased spouse to the surviving spouse without having to go to probate. For example, a house owned as joint tenants or tenants by the entirety automatically passes to the surviving spouse at the moment of death. The legal process to formalize that transfer is just that, a formality. The same goes for a joint bank account.

In contrast, separately owned property, such as an individually owned bank account, or a brokerage account in one spouse's name without any type of transfer on death designation, generally requires a probate proceeding to transfer the assets in the account to the surviving spouse. In some cases, a "fun money" account of a few thousand dollars will cost more to take through probate than the value of the account so it is often just ignored. If you get the image of essentially setting fire to a pile of cash you see the problem with this type of account. It definitely loses its character as "fun" money and now is better described as "make me mad" money!

While I certainly recommend a comprehensive estate plan of some type, at a minimum couples with accounts in their own name should race to the bank or brokerage and make their accounts a Pay on Death (or POD) account (for bank accounts) or a Transfer on Death (TOD) account for brokerage accounts. This type of account designation preserves your privacy during your lifetime--your spouse still has no access or visibility into these accounts--but it gives the bank or brokerage a person to transfer the assets to after your death rather than being required to pay it to your estate in a probate proceeding. This will save thousands of dollars and months of time.

Keep the "fun" in fun money by taking this simple step! If and when the time comes when a POD or TOD transfer is made your family will really appreciate it.

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