The Problems with Outright Transfers

Many people provide outright transfers of their assets to their family members upon their death.  These outright transfers can be achieved through dying intestate, writing a Will, listing the family member as the beneficiary on a retirement account or life insurance policy, or titling assets in a manner such as Joint Tenants with Rights of Survivorship, Transfer on Death, or Payable on Death.  However, outright transfers have several drawbacks which should be considered.

One drawback of outright transfers is a lack of creditor protection.  If a surviving spouse inherits assets outright, those assets are not protected from the surviving spouse's potential creditors.

Another drawback of outright transfers is a lack of spendthrift protection.  When a person inherits assets outright, they can spend through the money in a short amount of time with no restrictions or safeguards.

An alternative to outright transfers are transfers in trust.  Trusts can be structured in a manner to provide both creditor protection and spendthrift protection for the beneficiary, such as through the use of limited powers of appointment.  In this instance, the beneficiary would not have full leeway to do whatever they want with the trust assets.

The tradeoff between more flexibility/less protection versus less flexibility/more protection should be considered when setting up an estate plan.

If you are a prospective client and would like to learn more about hiring us for a financial consultation, where, among other things, we would review your current estate planning documents and provide customized recommendations, please visit our Schedule Meeting page.



Mike McErlane, DO, MBA, CFP^®, CFA^®, RICP^®, EA, MCEP^®

Mike McErlane is the owner and founder of Comprehensive Financial Planning for Doctors, LLC based in Frisco, Texas.

Comprehensive Financial Planning for Doctors, LLC (CFPFD) is an Investment Adviser registered with the Texas State Securities Board.  Registration of an Investment Adviser does not imply any specific level of skill or training.  CFPFD only transacts business in states or jurisdictions in which it is registered or exempt from registration.  A copy of CFPFD's current disclosure brochure is available through the Securities and Exchange Commission's Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

The opinions and analyses described are subject to change at any time without notice.  Any information is considered general and is not intended to provide any specific advice or recommendations.  Your use of the information is at your sole risk.  You should consult with your financial advisor, attorney, tax advisor, insurance agent, or other professional advisor before taking action on any information or implementing any strategy.