Beneficiary Designations

What Should I Know about Beneficiary Designations?

A designated beneficiary is named on a life insurance policy or some type of investment account as the designated recipient of those assets, in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.

If you’ve done your estate planning, most likely you’ve spent a fair amount of time on the creation of your will. You’ve discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations aren’t fun to think about but they’re the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

How Do I Avoid Unintentionally Disinheriting a Family Member?

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.

The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.

Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.

Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA.

You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).

Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.

You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

What Estate Planning Do I Need With a New Baby?

Congratulations, you’re a new mom or dad. There’s a lot to think about, and there is one vital task that should be a priority. That is making an estate plan. People usually don’t worry about estate planning, when they’re young, healthy and starting a new family. However, your new baby is depending on you to make decisions that will set him or her up for a secure future.

What estate planning do I need with a new baby
Having an estate plan is the only way to legally name a guardian for your child.

Motley Fool’s recent article, “If You’re a New Parent, Take These 4 Estate Planning Steps” says there are a few key estate planning steps that every parent should take to make certain they’ve protected their child, no matter what the future holds.

  1. Purchase Life Insurance. If a parent passes away, life insurance will make sure there are funds available for the other spouse to keep providing for the children. If both parents pass away, life insurance can be used to raise the child or to fund the cost of college. For most parents, term life insurance is used because the premiums are affordable, and the coverage will be in effect long enough for your child to grow to an adult.
  2. Draft a Will and Name a Guardian for your Children. For parents of minor children, the most important reason to make a will, is to name a guardian for your children. When you designate a guardian, select a person who shares your values and who will do a good job raising your children. By being proactive and naming a guardian to raise your children, it’s not left to a judge to make that selection. Do this as soon as your children are born.
  3. Update Beneficiaries. Your will should say what happens to most of your assets, but you probably have some accounts with a designated beneficiary, like a 401(k), and IRA, or life insurance. When you have children, you’ll need to update the beneficiaries on these accounts for your children to inherit these assets as secondary beneficiaries, so they will inherit them in the event of your and your spouse’s passing.
  4. Look at a Trust. If you pass away prior to your children turning 18, they can’t directly take control of any inheritance you leave for them. This means that a judge may need to appoint someone to manage assets that you leave to your child. Your child could also wind up inheriting a lot of money and property free and clear at age 18. To have more control, like who will manage assets, how your money and property should be used for your children and when your children should directly receive a transfer of wealth, ask your estate planning attorney about creating a trust. With a trust, you can designate an individual who will manage money on behalf of your children and provide instructions for how the trustee can use the money to help care for your children, as they age. You can also create conditions on your children receiving a direct transfer of assets, such as requiring your children to reach age 21 or requiring them to use the money to cover college costs. Trusts are for anyone who wants more control over how their property will help their children, after they’ve passed away.

When you have a new baby, working on your estate planning probably isn’t a big priority. However, it’s worth taking the time to talk to an attorney for the security of knowing your bundle of joy can still be provided for, in the event that the worst happens to you.

Reference: Motley Fool (September 28, 2019) “If You’re a New Parent, Take These 4 Estate Planning Steps”

Having a Will Is Not The Same As Having An Estate Plan

A last will and testament is an important part of an estate plan, and every adult should have one. But, there is only so much that a will can do, according to the article “Estate planning involves more than a will” from The News-Enterprise.

estate plan
Having a Will and having an Estate Plan are as different as apples and oranges.

First, let’s look at what a will does. During your lifetime, you have the right to transfer property. If you have a Power of Attorney it gives someone you name the authority to transfer your property or manage your affairs, while you are alive. In most states, this document expires upon your death.

When you die, a will is one piece of your estate plan that is used to transfer your property, according to your wishes. If you do not have a will, the court must determine who receives the property, as determined by your state’s law. However, only certain property passes through a will.

Individually owned property that does not have a beneficiary designation must be transferred though the process of probate. This includes real property, like house or a land, if there is no right of survivorship provision within the deed. The deed to the property determines the type of ownership each person has.

Couples who purchase property after they are married, usually own the property with the right of survivorship. This means that the surviving owner continues to own the property without it going through probate.

However, when deeds do not have this provision, each owner owns only a portion of the property. When one owner dies, the remaining owner’s portion must be passed through probate to the beneficiaries of the decedent.

Assets that have a designated beneficiary do not pass through probate, but are paid directly to the beneficiary. These are usually life insurance policies, retirement accounts, investment and/or bank accounts. Your will does not control these assets.

Beneficiaries through the will only receive whatever property is left over, after all reasonable expenses and debts are paid.

If you wish to ensure that beneficiaries receive assets over time through your estate plan, that can be done through a trust. The trust can be the beneficiary of a payable-on-death account. A revocable trust avoids property going through the probate process and can be established with your directions for distribution.

A will is a good start to an estate plan, but it is not the whole plan. Speak with an estate planning attorney about your situation and they will be able to create a plan that addresses distribution of your assets, as well as protect you from incapacity.

Reference: The News-Enterprise (September 30, 2019) “Estate planning involves more than a will”

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”

Scroll to Top