Beneficiary Designations

Estate Planning Is for Everyone

As we go through the many milestones of life, it’s important to plan for what’s coming, and also plan for the unexpected. An estate planning attorney works with individuals, families and businesses to plan for what lies ahead, says the Cincinnati Business Courier in the article “Estate planning considerations for every stage of life.” For younger families, it’s important to remember that estate planning is for everyone, and having an estate plan is like having life insurance: it is hoped that the insurance is never needed, but having it in place is comforting.

Estate planning is for everyone
Estate planning is the most effective way to protect against life’s unforeseen events, no matter what stage of life you may be in.

For others, in different stages of life, an estate plan is needed to ensure a smooth transition for a business owner heading to retirement, protecting a spouse or children from creditors or minimizing tax liability for a family.

Here are some milestones in life when an estate plan is needed:

Becoming an adult. It is true, for most 18-year-olds, estate planning is the last thing on their minds. However, as proof that estate planning is for everyone, at 18 most states consider them legal adults, and their parents no longer control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All young adults need a general power of attorney and health care directives to allow their parents to step in and help, if something happens.

That can be as minimal as a parent talking with a doctor during an office appointment or making medical decisions during a crisis. A HIPAA release should also be prepared. A simple will should also be considered, especially if assets are to pass directly to siblings or a significant person in their life, to whom they are not married.

Getting married. Marriage unites individuals and their assets. For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be merged, and the new spouse can become a joint owner, primary beneficiary and fiduciary. In addition to the wills, power of attorney, healthcare directive and beneficiary designations also need to be updated to name the new spouse or a trust. This is also a time to start keeping a list of assets, in case someone needs to access accounts.

When a child is born. When a new child joins the family, having an estate plan becomes especially important. Choosing guardians who will raise the children in the absence of their parents is the hardest thing to think about, but it is critical for the children’s well-being. A revocable trust may be a means of allowing the seamless transfer and ongoing administration of the family’s assets to benefit the children and other family members.

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business and the owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.

If a divorce occurs. Divorce is a sad reality for about half of today’s married couples. The post-divorce period is the time to review the estate plan to remove the ex-spouse, change any beneficiary designations, and plan for new fiduciaries. It’s important to review all accounts to ensure that any beneficiary designations are updated. A careful review by an estate planning attorney is worth the time to make sure no assets are overlooked.

Upon retirement. Just before or after retirement is an important time to review an estate plan. Children may be grown and take on roles of fiduciaries or be in a position to help with medical or financial affairs. This is the time to plan for wealth transfer, minimizing estate taxes and planning for incapacity.

Reference: Cincinnati Business Courier (Sep. 4, 2019) “Estate planning considerations for every stage of life.”

What Goes into an Estate Plan?

The thought of creating an estate plan can be intimidating, but this article from Brainerd Dispatch, “Navigating your estate plan,” wisely advises breaking down the process into smaller pieces, making it more manageable. By taking it step by step, it’s more likely that you’ll be comfortable getting started with the process.  The first step is understanding what goes into an estate plan.

What goes into an estate plan?
Deciding what goes into an estate plan that fits your life and accomplishes your goals should be done with the help of an estate planning attorney.

Start with Beneficiaries. This may be the easiest way to start. If you have retirement accounts, like IRAs, 401(k)s, 403(b)s or other retirement accounts, chances are you have already written down the name of the people you want to receive your assets after you pass away. The same goes for life insurance policies. The beneficiary designation tells who receives the assets on your death. You should also note that there are tax ramifications, if you don’t have a beneficiary. Your assets could become taxable five years after you die, without a named beneficiary.

Be aware that no matter what your will says, the name on your beneficiary designations on these accounts determines who gets those assets. You need to check on these from time-to-time to be sure the people you have named are still the people who you want to receive your accounts. You should review the designations every time you review your estate plan, which should be every three or four years.

You should also name a contingent beneficiary on all accounts that allow it.  The contingent beneficiary is the person who will receive the asset is the primary beneficiary is unable to receive it for any reason.

Where There’s a Will, There’s a Way. The will is a key ingredient that goes into an estate plan. It can be used to ensure that your family has the management assistance they need, and, if you have minor children, establish who will raise them is you’re unable to (in fact, a will is the only way you can name a guardian for your children.)

Not having a will leaves your family in a terrible position, where they will have to endure unnecessary expenses and added stress. Your assets will be distributed according to the laws of your state, and not according to your own wishes.

Directives for Difficult Times. Health care directives give your loved ones direction when a difficult situation occurs. If you become incapacitated, through an accident or serious illness, the health care directive tells your family members what kind of care you want—or do not want. You should also name a health care surrogate, so that a person can make medical decisions on your behalf if you’re unable to speak for yourself. Working with an estate planning attorney who is licensed in your state is is important for this item because different states have different laws concerning naming a healthcare surrogate and the decisions they can make.

In addition, you’ll need a financial power of attorney. This allows you to designate someone to step in and manage your finances in the case of incapacity. This is especially important if you are single, because otherwise a court may have to name someone to be your financial guardian.

What About Trusts? If you own a lot of assets or if your estate is complicated, a trust may be helpful. Trusts are legal entities that hold assets on behalf of your beneficiaries. There are many different types of trusts that are used to serve different purposes, from Special Needs Trusts that are designed to help families plan for an individual with special needs, to revocable trusts used to avoid probate and testamentary trusts, which are created only when you die. An estate planning attorney will know which trusts are appropriate for your individual situation.

Working with a qualified and experienced estate planning attorney will help you understand what goes into an estate plan that makes the most sense for you and accomplishes your goals.

Reference: Brainerd Dispatch (Aug. 11, 2019) “Navigating your estate plan”

Will the State Decide Who Gets Your Assets?

It’s something that everyone needs, but often gets overlooked. Estate planning makes some people downright uncomfortable. There’s no law that says you must have an estate plan—just laws that will determine how your property is distributed and who will raise your children if you don’t have a will.  So, will the state decide who gets your assets?

Will the state decide who gets your assets?
If you don’t have a will when you pass away, state laws will determine who gets your assets.

If you don’t at least have a last will and testament, state statutes will decide who gets your assets after you pass away.  Thats one of the biggest reasons planning is important, says WMUR 9 in a recent article “Money Matters: Estate planning,” if you want to be the one making those decisions.

An estate plan can be simple if you only own a few assets, or complicated if you have significant assets, more than one home or multiple investments. Some strategies are easier to implement, like a last will and testament. Others can be more complex, like trusts. Whatever your needs, an estate planning attorney will be able to give you the guidance that your unique situation requires. Your estate planning attorney may work with your financial advisor and accountant to be sure that your financial and legal plans work together to benefit you and your family.

The first step for any estate plan is to review your family finances, dynamics and assets.

  • Who are your family members?
  • How do you want to help them?
  • What do they need?
  • What is your tax picture like?
  • How old are you, and how good is your health?
  • Do you have minor children?  If so, who will care for them?

These are just a few of the things an estate planning attorney will discuss with you. Once you are clear on your situation, you’ll discuss overall goals and objectives. The attorney will be able to outline your options, whether you are concerned with passing wealth to the next generation, avoiding family disputes, preparing for a disability or transferring ownership of a business.

A last will and testament will provide clear, legal direction as to how your assets should be distributed and who will care for your minor children.

A trust is used to address more complex planning concerns. A trust is a legal entity that holds assets to be used for the benefit of one or more individuals. It is overseen by a trustee or trustees, who can be individuals you name or professionals.

If you create trusts, it is important that assets be retitled so the trust owns the assets and not you personally. If the assets are not retitled, the trust will not achieve your goals.

Some property typically has its own beneficiary designations, like IRAs, retirement accounts and life insurance. These assets pass directly to heirs according to the designation, but only if you make the designations on the appropriate forms.

Once you’re done with your estate plan, make a note on your calendar. Estate plans and beneficiary designations need to be reviewed every three to five years. Lives change, laws change and your estate plan needs to keep pace.

Don’t be left asking yourself whether the state will decide who gets your assets.  Take charge and work with an experienced estate planning attorney to make sure you are the one deciding who gets your assets and who will raise your children.

Reference: WMUR 9 (Aug. 1, 2019) “Money Matters: Estate planning”

Why Would I Need to Update My Will?

OK, great!! You’ve created your will! Now you can it stow away and check off a very important item on your to-do list. Well, that’s mostly correct.  You’ll still need to update your will from time-to-time.

Update your will
Your will should be reviewed every 3 to 5 years and updated as your life changes.

Thrive Global’s recent article, “7 Reasons Why You Need to Review your Will Right Now,” says it’s extremely important that you regularly update your will to avoid any potential confusion and extra stress for your family at a very emotional time. As circumstances change and major life events take place (like the birth of a child or grandchild, the purchase of a home, or retirement, to name just a few), you need to update your will reflect changes in your life. As time passes and your situation changes, your will may become outdated, obsolete or even create confusion when the time comes for your will to be administered.

New people in your life. If you do have more children after you’ve created your will, review your estate plan to make certain that the wording accounts for your new children. You may also marry or re-marry, and grandchildren may be born that you want to include. Make a formal update to your estate plan to include the new people who play an important part in your life and to remove those with whom you lose touch.

A beneficiary or other person passes away. If a person you had designated as a beneficiary or personal representative of your will has died, you must make a change or it could result in confusion, when the time comes for your estate to be distributed. You need to update your will, if an individual named in your estate passes away before you.

Divorce. If your will was created prior to a divorce, and you want to remove your ex from your estate plan, talk to an estate planning attorney about the changes you need to make.

Your spouse dies. Wills should be written in such a way as to always have a backup plan in place. For example, if your husband or wife dies before you do, their portion of your estate might go to another family member or another named individual. If this happens, you may want to redistribute your assets to other people.

A child becomes an adult. When a child turns 18 and comes of age, she is no longer a dependent.  Therefore, you may need to update your will in any areas that provided additional funds for any dependents.

You experience a change in your financial situation. This is a great opportunity to update your will to protect your new financial situation.

You change your mind. It’s your will, and you can change your mind whenever you like.

Reference: Thrive Global (June 17, 2019) “7 Reasons Why You Need to Review your Will Right Now”

What Should I Keep in Mind in Estate Planning as a Single Parent?

Most estate planning conversation eventually come to center upon the children, regardless of whether they’re still young or adults.  So what should you keep in mind in estate planning as a single parent?

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

Kiplinger’s recent article, “Estate Planning for Single Parents” explains that when one parent dies, the children typically don’t have to leave their home, school and community. However, when a single parent passes, a child may be required to move from that location to live with a relative or ex-spouse.

After looking at your children’s situation with your estate planning attorney to understand your approach to those relationships, you should then discuss your support network to see if there’s anyone who could serve in a formal capacity, if necessary. A big factor in planning decisions is the parent’s relationship with their ex. Most people think that their child’s other parent is the best person to take over full custody, in the event of incapacity or death. For others, this isn’t the case. As a result, their estate plan must be designed with great care. These parents should have a supportive network ready to advocate for the child.

Your estate planning attorney may suggest a trust with a trustee. This fund can accept funds from your estate, a retirement plan, IRA and life insurance settlement. This trust should be set up, so that any court that may be involved will have sound instructions to determine your wishes and expectations for your kids. The trust tells the court who you want to carry out your wishes and who should continue to be an advocate and influence in your child’s life.

Your will should also designate the child’s intended guardian, as well as an alternate, in case the surviving parent can’t serve for some reason. The trust should detail how funds should be spent, as well as the amount of discretion the child may be given and when, and who should be involved in the child’s life.

A trust can be drafted in many ways, but a single parent should discuss all of their questions with an estate planning attorney.

Reference: Kiplinger (May 20, 2019) “Estate Planning for Single Parents”

Why Do Singles Need These Two Estate Planning Tools?

Morningstar’s article, “2 Estate-Planning Tools That Singles Should Consider” explains that a living will, or advance medical directive, is a legal document that details your wishes for life-sustaining treatment. It’s a document that you sign when you’re of sound mind and says you want to be removed from life supporting measures, if you become terminally ill and incapacitated.

Powers of Attorney for healthcare and finances are often overlooked as critical estate planning documents for singles.

If you’re on life support with no chance of getting better, you’d choose to have your family avoid the expense and stress of keeping you alive artificially.

Like a living will, a durable power of attorney for healthcare is a legal document that names an agent to make healthcare decisions for you, if you are unable to make them yourself.

A durable power of attorney for healthcare can provide your instructions in circumstances in which you’re not necessarily terminally ill, but you are incapacitated.

When selecting an agent, find a person you trust enough to act on your behalf when you’re unable. Let this person know exactly how you feel about blood transfusions, organ transplants, disclosure of your medical information and other sensitive topics that may arise, if you’re incapacitated.

A power of attorney eliminates any confusion, especially if this person is someone other than your spouse. Your doctors will know exactly who the decision-maker is among your relatives and friends.

These two documents aren’t all that comprise a fully comprehensive estate plan. Singles should regularly make certain that the beneficiary designations on their checking and retirement accounts are up to date.

You should also consider your life insurance needs, especially if you have children and/or a mortgage.

It is also important to understand that a living will doesn’t address the issues of a will. A will ensures that your property is distributed after your death, in accordance with your wishes. Ask for help from an experienced estate planning attorney.

These two documents—a living will and a durable power of attorney—can help ensure that in a healthcare emergency, any medical and financial decisions made on your behalf are in accordance with what you really want. Speak with to an estate-planning attorney in your state to get definitive answers to your questions.

Reference: Morningstar (April 23, 2019) “2 Estate-Planning Tools That Singles Should Consider”

Common Mistakes with Beneficiary Designations

Questions about beneficiary designations are among the most common we hear from new clients in our law practice.  This is a topic that should be among those discussed by an estate planning attorney during your first meeting.

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Estate Planning Attorney
Assets with a beneficiary designation will not be distributed according to your will.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

  1. Failing to name a beneficiary. Many people never name a beneficiary for their retirement accounts. If you don’t name a beneficiary for retirement accounts, the financial company has it owns rules about where the assets will go after you die. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications and may need to be handled through the costly and time-consuming probate courts. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
  2. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your estate planning attorney about creating a trust to be named as the beneficiary.
  3. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
  4. Failing to update your beneficiaries. Since there are life changes (like marriage and divorce for example), make sure your beneficiary designations are updated on a regular basis.
  5. Failing to review beneficiary designations with your estate planning attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

Forgot to Update Your Beneficiary Designations? Your Ex Will be Delighted

Your will does not control who inherits all your assets when you die. This is an aspect of estate planning that many people do not know. Instead, many of your assets will pass by beneficiary designations, says Kiplinger in the article “Beneficiary Designations: 5 Critical Mistakes to Avoid.”

The beneficiary designation is the form that you fill out, when opening many different types of financial accounts. You select a primary beneficiary and, in most cases, a contingency beneficiary, who will inherit the asset when you die.

estate planning beneficiary
If you don’t update your beneficiaries after a divorce your ex will receive some of your assets.

Typical accounts with beneficiary designations are retirement accounts, including 401(k)s, 403(b)s, IRAs, SEPs, life insurance, annuities and investment accounts. Many financial institutions allow beneficiaries to be named on non-retirement accounts, which are most commonly set up as Transfer on Death (TOD) or Pay on Death (POD) accounts.

It’s easy to name a beneficiary and be confident that your loved one will receive the asset, without having to wait for probate or estate administration to be completed. However, there are some problems that occur and mistakes get expensive.

Here are mistakes you don’t want to make:

Failing to name a beneficiary. It’s hard to say whether people just forget to fill out the forms or they don’t know that they have the option to name a beneficiary. However, either way, not naming a beneficiary becomes a problem for your survivors. Each company will have its own rules about what happens to the assets when you die. Life insurance proceeds are typically paid to your probate estate, if there is no named beneficiary. Your family will need to go to court and probate your estate.

When it comes to retirement benefits, your spouse will most likely receive the assets. However, if you are not married, the retirement account will be paid to your probate estate. Not only does that mean your family will need to go to court to probate your estate, but taxes could be levied on the asset. When an estate is the beneficiary of a retirement account, all the assets must be paid out of the account within five years from the date of death. This acceleration of what would otherwise be a deferred income tax, must be paid much sooner.

Neglecting special family considerations. There may be members of your family who are not well-equipped to receive or manage an inheritance. A family member with special needs who receives an inheritance, is likely to lose government benefits. Therefore, your planning needs to include a SNT — Special Needs Trust. Minors may not legally claim an inheritance, so a court-appointed person will claim and manage their money until they turn 18. This is known as a conservatorship. Conservatorships are costly to set up. They must also make an annual accounting to the court. Conservators may need to file a bond with the court, which is usually bought from an insurance company. This is another expensive cost.

If you follow this course of action, at age 18 your heir may have access to a large sum of money. That may not be a good idea, regardless of how responsible they might be. A better way to prepare for this situation is to have a trust created.  The trustee would be in charge of the money for a period of time that is determined by the personality and situation of your heirs.

Using an incorrect beneficiary name. This happens quite frequently. There may be several people in a family with the same name. However, one is Senior and another is Junior. The person might also change their name through marriage, divorce, etc. Not only can using the wrong name cause delays, but it could lead to litigation, especially if both people believe they were the intended recipient.

Failing to update beneficiaries. Just as your will must change when life changes occur, so must your beneficiaries. It’s that simple, unless you really wanted to give your ex a windfall.

Failing to review beneficiaries with your estate planning attorney. Beneficiary designations are part of your overall estate plan and financial plan. For instance, if you are leaving a large insurance policy to one family member, it may impact how the rest of your assets are distributed.

Take the time to review your beneficiary designations, just as you review your estate plan. You have the power to determine how your assets are distributed, so don’t leave that to someone else.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

As a New Parent, Have You Updated (or Created) Your Estate Plan?

You just had a baby. As a new parent you’re sleep-deprived, overwhelmed, and frazzled. Having a child dramatically changes one’s legacy and makes having an estate plan all the more necessary, says ThinkAdvisor’s recent article, “5 Legacy Planning Basics for New Parents.”

If you have a baby, estate planning is a must
After you have a baby, putting an estate plan in place is one of the most important and effective things you can do to protect your child.

Take time to talk through two high-priority items. Create a staggered checklist—starting with today—and set attainable dates to complete the rest of the tasks. Here are five things to put on that list:

  1. Will. This gives the probate court your instructions on who will care for your children, if something happens to both you and your spouse. A will also should name a guardian to be responsible for the children. Parents also should think about how they want to share their personal belongings and financial assets. Without a will, the state decides what goes to whom. Lastly, a will must name an executor.
  2. Beneficiaries. Review your beneficiary designations when you create your will, because you don’t want your will and designations (on life insurance policies and investments) telling two different stories. If there’s an issue, the beneficiary designation overrides the will. All accounts with a beneficiary listed automatically avoid probate court.
  3. Trust. Created by an experienced estate planning attorney, a trust has some excellent benefits, particularly if you have young children. Everything in a trust is shielded from probate court, including property. This avoids court fees and hassle. A trust also provides some flexibility and customization to your plan. You can instruct that your children get a sum of money at 18, 25 or 30, and you can say that the money is for school, among other conditions. The trustee will distribute funds, according to your instructions.
  4. Power of Attorney and Health Care Proxy. These are two separate documents, but they’re both used in the event of incapacitation. Their power of attorney and health care proxy designees can make important financial and medical decisions, when you’re incapable of doing so.
  5. Life Insurance. Most people don’t think about purchasing life insurance, until they have children. Therefore, if you haven’t thought about it, you’re not alone. If you are among the few who bought a policy pre-child, consider increasing the amount so your child is covered, if something should happen.

Reference: ThinkAdvisor (March 7, 2019) “5 Legacy Planning Basics for New Parents”

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