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July 29, 2022
July 29, 2022
by Misty Aldrich, Esq., Carlile Patchen & Murphy
The most common issues that arise are changes to beneficiary designations and titling of various assets, including IRA/employer retirement plans, life insurance, brokerage accounts, vehicles, etc. For example, we typically see life insurance and annuity beneficiary designations that name a spouse as the primary beneficiary and children as contingent beneficiaries. However, suppose you establish a trust to hold assets upon death for the benefit of a spouse and/or children. In that case, the beneficiary designation must be changed to the trust. Otherwise, the proceeds of that insurance policy or annuity pass directly to the individuals, and the benefits of asset management and protection under the trust are lost.
We also find unintended issues when clients name a spouse as the primary beneficiary and children as contingent beneficiaries for their IRA/retirement. This is also true for individuals who name only a primary but not a contingent beneficiary. The failure to integrate the beneficiary designations within the estate plan can create unintended consequences and less favorable tax consequences for the beneficiaries when they receive the benefits.
For bank accounts (including Certificates of Deposit), broker accounts, vehicles and even real estate, Payable on Death and Transfer on Death beneficiary designations are excellent tools used to transfer assets efficiently to beneficiaries, including trusts. Also, to properly implement some estate plans, jointly held financial accounts sometimes need to be re-titled to only one of those joint owners. Conversely, some individually controlled accounts need to be re-titled as jointly held.
All financial institutions have specific forms and processes for naming beneficiaries and account owner changes.
Estate planning is an ongoing process. Many clients make all the necessary changes when their plan is initially established, but “life” happens. Clients may change banks, acquire new insurance policies, purchase new vehicles, etc. Still, the appropriate beneficiary designations are not carried over. This is why it’s critical to review and update estate plans. It allows attorneys to check to ensure beneficiary designations and titling of all assets are still appropriate for the plan.
One other aspect of estate planning that goes beyond the documents is rooted in the world of technology in which we live. Since many aspects of our lives are electronic, including our finances, those responsible for handling the estate (or trust) upon death must have, or know how to access, all email accounts, passwords, usernames, security questions, etc. Many clients like to keep an updated list of their estate planning documents. The inability to access a decedent’s electronic accounts and records is a growing problem that creates many issues and additional estate administration costs.
Too often, carefully thought-out plans fail to deliver the desired result when death occurs. While a lot of the follow-up work falls on you as their trusted advisor, many of these follow-up tasks must be taken on by the client. Consider this a guide to ensuring both you and your client are completing the necessary follow-up steps that will mitigate as much stress as possible during an already stressful time.