The Case against Survivorship Accounts

I have had numerous clients tell me over the years that they’re not sure who they designated as beneficiaries on their checking, savings, investment and retirement accounts.   Many are not even sure whether they named any beneficiaries.

When something changes in life for them (a divorce, death of a spouse, death of a child, or just changing their mind about how to leave their assets, etc.), they have to wonder about all the places where they have to go and fix the beneficiary designations.

Contrast that approach with the traditional, simple will.  If all of your accounts are payable to your estate, they simply go to whomever you designate in your will.  That’s much smarter because it’s much more efficient.  It’s much less prone to errors.  Errors in estate-planning can be very costly.  The simpler, the better.  Just have a will and update it (and only it) as necessary.  Do not set up beneficiary designations on your accounts.  That way, they will all go to your estate by default.  You will never have to update them.

The argument against my advice is that, “Probate is slow and costly.”  It’s not.  In most cases, an executor in a will can get letters testamentary within 3-4 weeks.  It’s a largely bureaucratic process that is pretty automatic.

I would suggest that if a “survivorship account” is necessary, there should be only one, and it should be just for normal expenses for a few months, or so.