The Danger of Non-Testamentary Designations

This column first appeared in the San Antonio Express-News on November 1, 2014

Dear Mr. Premack: I have been living with my significant other for around 30 years, and we have always agreed that we like this arrangement and have no desire to marry. We do take care of each other, and have even both made trusts for our separate assets. His trust says his assets will benefit me for life, and then pass to friends, family members and charities he favors. Mine has similar provisions for him, and then designates some family and charities I like. Most of my funds are held in a single brokerage account, and recently the advisor suggested that I make the account “transfer on death” to my significant other. What is your take? – DM

The advisor is giving you a generic recommendation that might be correct for some people, but is not correct for you. The brokerage firm, like many financial institutions, is seeking to reduce its own exposure to possible liabilities. They worry about what they should do when you die, know that your funds will have to be distributed to someone, and tend to put their own interests first.

Traditionally, distribution instructions would have been contained in a Last Will and Testament. When the account owner dies, her Will would be admitted to probate in court. The court would grant “Letters Testamentary” to the person she selected as Executor. Her Executor would contract her broker to provide her death certificate and Letters Testamentary. The broker would release her funds to the Executor, and would be relieved of liability for the assets.