Q: I have two daughters. One I have given money to during my lifetime and the other not. I want them to be equalized at the time of my death. Can this be done?
A: Yes, but it is not always perfect. Parents often give gifts or loans to their children during their lifetimes. It is important for the parent to designate the transfer of funds to the child either as a gift or a loan. If it is a loan, then there has to be a repayment schedule with interest. If there is no information as to repayment, it will be considered a gift.
The will can, and often does, equalize the gifts between children with more funds being given to the child who did not receive any during the parents’ lifetime.
The best practice for parents giving gifts to children is to give them equal gifts during one’s lifetime; then they are considered gifts and there are no after-death considerations to worry about.
However, at times, the gifts given to children are unequal because of the children’s needs. If gifts are given during the lifetime and they are to be equalized at death, then a record should be kept by the parent and at death that may be used as a method of calculating any equalization. Sometimes those records disappear mysteriously. If records are to be kept, then a better method would be to send the lawyer a note each time a gift is given to one child or the other. This can be done by email. Another method would be that each time a gift is given to a child, both children are given a letter to the effect that it was done so both children are kept on the same information page at all times.
The real nightmare for executors and lawyers is that no plan is established, but something about equalization is written in the will. If, after death, there is no information, there can be some recrimations between the children, which then becomes the parents’ fault for not thinking ahead and creating a logical system.
Q: My mother died and she had in her possessions two different types of bank accounts. The first one said “mom POD son.” The second said “mon ITF son.” What are they and what do they mean?
A: The POD account is a payable on death account. It means that upon the death of mom, the item will automatically go to son. The account is taxable to mom for Pennsylvania inheritance tax purposes, because the commonwealth believes that the funds creating the account were mom’s and she could have cashed in the account at any time before her death.
In the second account, the ITF stands for “in trust for.” This type of account means that the funds in the account are being held in trust for the son by mom. In reality, the funds are mom’s and they are taxed to mom’s estate for inheritance tax at the time of her death.
The two types of accounts, in some ways, are a poor man’s method of transferring property. It would probably be better to work out the whole scheme of transferring funds at the time of death through one’s will, because the plan could be viewed as a whole and not as a piece-meal operation with a number of ITF accounts or POD accounts.
From the lawyer’s perspective, the ITF and POD accounts are a worry because the client asks the lawyer to draft a will for her, and then, after the will is drafted and the lawyer thinks she knows what is to take place in the client’s estate, the client opens up POD or ITF account and mixes the ultimate distribution. The will then no longer makes sense in terms of its distribution, because it probably was not related at all to the POD or ITF accounts.