Spending Your Kids’ Inheritance – Part II

by Russ Mitchell

This is the second of a three-part article designed to summarize various mechanisms by which you may pass property to your children or others to be used as an outline of possible options to discuss with your attorney or accountant and is not an exhaustive list.  Please refer to my earlier posting, “Spending Your Kids’ Inheritance, Parts I,” for further introductory information.

POD (Payable on Death) Bank Accounts

You may wish to designate specific beneficiaries to receive funds in your bank accounts upon your death.  This becomes a contractual relationship between you and the bank or financial institution that does not require court intervention (probate) or any other act by anyone in order for the beneficiaries to obtain the funds left in the accounts.  Depending on the manner and amounts of deposited funds, this method may also have unexpected tax consequences.  Although this does not carry with it the risks of joint tenancy (see earlier post), the funds in the account may become unavailable should you become incapacitated.

Life Insurance

You may choose to name beneficiaries on life insurance policies in certain proportion or on different policies in order to give specific benefits of certain amounts based on the amount of the policy in force.  This is a contractual arrangement between you and the insurance company and does not require any court intervention (probate) in order for the life insurance benefit proceeds to be paid by the insurance company to the beneficiaries.  Typically, an insurance company will make a payout to the beneficiaries within two to three months of your death once it receives notice.  In some circumstances, a life insurance policy can provide the means for your beneficiaries to have adequate funds to meet certain estate tax obligations. One important point to consider in your planning is whether the beneficiaries named on life insurance are consistent with beneficiary designations you have made elsewhere.  Inconsistencies on life insurance beneficiary forms may create confusion for your heirs as to what you intended to happen at death.


A will is a document used to convey assets from one generation to another or to other people or charities.  The will can give specific directions as to how bank accounts or other financial accounts, real property, or personal property are distributed after your death.  In order for the will to be enforceable, it must be processed through a court in a procedure called probate.  One of the key purposes of probate is having a person designated as the personal representative (aka executor) for your estate.  The personal representative then has authority to act on behalf of the estate according to the provisions of the will to sign documents that otherwise would require your signature.  The personal representative can then interact with financial institutions to transfer funds and assets as directed under the will.  A probate procedure can have costs and expenses of a few thousand dollars to tens of thousands of dollars, depending on how the beneficiaries are getting along and how many assets are involved.  All estate information, including the identity of beneficiaries, is part of the public filings in the probate proceedings in court.  This includes identifying the total assets, their values, and to whom they were distributed under the terms of the will.  Some people prefer privacy regarding their estate and seek to avoid probate where possible.

This article is not intended to be legal advice.  Receipt of this information does not create an attorney-client relationship.

IRS CIRCULAR 230 DISCLOSURE:  In order to comply with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in, omitted from, or implied by this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.


Know someone that could use this information? Send this page by clicking on the SHARE button below: Bookmark and Share

Leave a Comment

Before you click Submit, solve this math puzzle captcha: *