Attorney & Mediator
Attorney & Mediator

Estate Planning – Beneficiary Designations

Beneficiary Designations can either simply or complicate the administration of your estate.

Life Insurance:  For some assets, the only method of passing the benefit on to heirs is by a beneficiary designation – life insurance is one.  The named beneficiary will receive the money without having to go to Probate court or through the trustee of your trust.  Therefore, make certain that these beneficiary designations are correct.

Is the beneficiary your former spouse?  Your parents?  Check to make sure and update them so that large sums of money are not passed on to unintended beneficiaries.

IRA’s, 401 K’s, Annuities: If you are married, the primary beneficiary of these assets will in all likelihood be your spouse.  In this way, there is a continuation of the income stream to them.  They will be able to transfer these benefits into their own social security number.

There should be a secondary beneficiary as well.  Best from a tax perspective is to name a person.  While there may be a redetermination of the required minimum distribution that must be taken annually, under current regulations, the beneficiaries will be able to stretch this money out over their lifetimes.

If an entity is named, the stretch opportunity will be lost.  If you make your IRA payable to your estate or your trust, it will in all likelihood be taxed as income first and distributed to your heirs second.  While they will receive the money income tax free, there will be less money to distribute.

Again as with your life insurance, check the beneficiary designations.  Make sure that you have not named a former spouse.

Other Financial Assets and Bank Accounts: It is possible to pass these assets along to beneficiaries through a transfer on death (TOD) provision.  In this way, the money distribution is not subject to the Probate court process.

Beware: If you have a Will or a Trust that has a distribution scheme, making one or more of your accounts payable to one individual can upset that distribution scheme.  If you have stated that your estate should be distributed in equal shares to all of your children, and then you have made several cash assets payable on your death to one of them, he/she will receive that money outright and still be entitled to his/her equal share of the rest.

Make sure that your beneficiary designations are up to date and that they further your estate planning goals.

Leave Enough Cash

Whether you have a Will or a Trust, when you die, your estate won’t be wrapped up in a matter of days or weeks.  One problem that often arises is a lack of liquidity or cash.

In an effort to assure that nothing goes through Probate court, many people place beneficiary designations on every asset.  Those end up going directly to the beneficiaries.  The remaining asset become the real estate which must be sold. This real estate will still require upkeep, payment of utilities and taxes, and possibly mortgage payments while it sits on the market.

After a death, there are questions concerning the payment for the funeral and other related costs.  Who will foot these bills out of their own pocket, if there is no cash in the estate.

If the estate must go to Probate, there will be cash needed for the filing fees and costs, attorneys fees, etc.  Again, one person will be out of pocket unless this is planned for ahead of time.

If you have a trust and there is an account with cash, that will assist the successor trustee in being able to pay the bills.  If you have a Will, it may be important to make sure that you either do have an account that does not have any specific beneficiary, or to have a small amount of life insurance available.

In this way, those that come after you will have the ability to wrap up your estate in accordance with your wishes – without having to front the costs themselves.

How to pick a Guardian.

We all expect to walk beside our children through infancy, elementary school, high school and college.  We dream about the beautiful wedding they will have and look forward to the day that we welcome our grandchildren.

The sad truth is that this is does not happen for everyone.  Whether due to illness or accident, some of us cannot be present until our baby is 18.  Therefore, it is important to have the Guardian talk.

How do you decide on a Guardian?  Often, the parents don’t immediately agree on an individual.  If you are both close to your families, this can be difficult as you may be required to select one over another.

Other times, there are conflicts in families that have created a separation or estrangement.

Should it be a family member?  First, you should look at the lifestyle of your family members.  Does it reflect who you have become?

While we may love our parents and siblings, they may not share the values that we have developed.  If you look back and don’t agree with your parents’ child rearing techniques, they may not be good candidates.  If you think that your nieces and nephews are too wild, too sedentary, not studious enough, then your sibling may not be the best selection.

If you were both to die, your child or children would be in a great state of shock.  It should not be made even more difficult by thrusting them into a different lifestyle.

You may want to look at your close friends who share your values.  Would these people be more appropriate a choice?

Next, look at age.  If you have had children later in life, it is possible that your parents may be too old to take on this task.  While it is acceptable for someone 65 to be raising a small child, how will they do when the child is 16 and they are 80?

Of vital importance is to discuss this issue with the individuals you would like to nominate.  While they may love you and your children, they may not be able or willing to raise additional children if something were to happen to you.  The person who is ably raising a family of four children may not be able to take on an additional three.

Once you have made your decision and have discussed it with the potential Guardian, you need to put this in writing in a Last Will and Testament.  This will direct the Probate Court as to your decision upon this very important issue.