Don’t Let Beneficiary Designations Unravel Your Estate Plan

Many people pay for a will or trust and assume their estate planning is done. Unfortunately, without proper beneficiary designations, an estate can still end up in probate.

A thorough estate plan can help your heirs avoid unnecessary taxes and legal hassles. The first step is to understand how your financial accounts interact with your legal documents.

Whether you have a trust, a will or both, here’s what you need to know:

Beneficiary Designations Matter

When you open a retirement account, a life insurance policy or bank account, you may be asked to fill out a beneficiary designation form. Beneficiaries are individuals or entities who will inherit your assets when you pass away.

These designations carry immense legal weight. When an account has a designated beneficiary, it bypasses probate (the court-supervised process of distributing a deceased person's estate). Probate is notoriously slow, bureaucratic, and expensive. Beneficiary designations act like a legal fast-pass, allowing your loved ones to claim assets directly from the financial institution with just a death certificate.

Unfortunately, many people complete their beneficiary forms once and never look at them again.

Beneficiary Designations Override a Will

Failing to keep your beneficiary designations current can mean an ex-spouse legally inherits your retirement savings, regardless of what your current will says. This isn't just a hypothetical risk.

Take the real-life story of Jeffrey Rolison. In 1987, Rolison made Margaret Sjostedt as the sole beneficiary of his work retirement account. The couple broke up two years later, but Rolison never updated his beneficiary form. When Rolison passed away decades later, a court ruled Margaret should legally inherit Jeffrey's $1 million retirement account.

Can a trust be a beneficiary?

Setting up your trust as the beneficiary for bank accounts and investment accounts is generally a good idea. Consult a financial planner before making the trust the beneficiary of your IRA, 401(k), 403(b), etc.

Making a trust the beneficiary of a hefty retirement savings account may (unintentionally) gift your heirs a sizeable tax bill because whoever inherits the trust may have only five years to withdraw everything in your IRA account. When a spouse or child is your beneficiary, the IRS gives them 10 years to empty the account.

Learn more about what assets should and shouldn’t be included in your trust and the importance of retitling assets.

Ensure Your Final Wishes Are Honored

Working with a financial planner to create your estate plan can save your loved ones thousands of dollars in taxes and probate expenses. One of our clients recently saved his heirs approximately $58,000 simply by transferring his real estate into a revocable trust rather than relying solely on a will.

If I have a trust, do I need a will (and vice versa)?

For most people, a living trust is the best way to maximize their financial legacy, avoid a lengthy probate process and keep their affairs private. That said, a will can be an important “catch all” for things that may not be included in the living trust, such as:

• Pets
• Personal belongings
• Anything not listed in the trust.

A will can also do things a trust cannot, such as designating guardians for minor children.

Whether you choose to have a will, a trust or both, it’s important to have something in place — even if you’re only in your 40s or 50s and in good health. If the worst happens, having a plan in place will help ease the burden on your loved ones during an already difficult time.

Talk to an Expert

Many people spend years building wealth and carefully creating their legacy, only to have one overlooked form turn everything over to the courts. Our team of experts can help ensure your beneficiary designations and legal documents align with your overall estate plan. We can also help you set up a trust and craft your legacy.

The first step is to connect with us online or by phone. (415) 541-7774. We take a personalized approach and, after getting to know you, we’ll craft a custom strategy aligned with your goals.

Related Reading:

• Creating a Trust Isn't Enough: The Importance of Transferring Assets
• IRA Beneficiary Designations / The Smart Way to Leave Assets to Your Heirs
• Estate Planning: How to Avoid Common Pitfalls and Costly Problems

Disclaimer:

Assembly Wealth (“Assembly”) is an SEC registered investment adviser; however, this does not imply any level of skill or training and no inference of such should be made. The opinions expressed herein are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. We provide historical content for transparency purposes only. All opinions are subject to change without notice and due to changes in the market or economic conditions may not necessarily come to pass. Mention of a security should not be considered a recommendation or solicitation to purchase or sell the security, and any securities mentioned may be held by Assembly for client portfolios.

The client example above reflects the experience of a particular client and is provided for illustrative purposes only. Estate planning strategies and the resulting tax or probate savings depend on each client's unique financial circumstances, applicable law, and individual objectives. There is no guarantee that other clients will achieve similar results.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Information presented represents an opinion as of the date published and should not be considered an investment recommendation. Assembly does not become a fiduciary to any listener, reader or other person or entity by the person’s use of or access to the material. The reader assumes the responsibility of evaluating the merits and risks associated with the use of any information or other content and for any decisions based on such content.