Continuing our series on “Getting Real: Tough Talks in Estate Planning” we discuss what may happen when changes are made to your Estate Plan. Updates or changes are often made when changes in a person’s relationships occur (re-marriage, for example). Changing your Estate Plan can trigger the need to update and change other important documents. Not completing the entire Estate Plan process of also reviewing other related documents can have unintended consequences. Many people unintentionally disinherit loved ones. They assume that since they have updated their Trust or Will that that will control how all of their assets are distributed. This is not always the case.
Retirement Account, Life Insurance & Annuities:
Retirement Accounts and IRAs are distributed to whom you name as the “Death Beneficiary”. This is the same with Life Insurance and Annuities. It is often the case with Certificates of Deposit at a bank, which may have a “Death Beneficiary”.
Whoever you have named as your Death Beneficiary on that asset will receive that asset regardless of what your Trust or Will says. In other words it is a “Contract”. If you have named your ex-spouse and you intended for that asset to go to your new spouse, it is not going to. It will move by whom you have named as the “Death Beneficiary”. The Retirement Account Custodian, Bank, Life Insurance Company and other holders of your investments are required by “Contract” to pay that asset to whomever you named as Death Beneficiary. Therefore, it is very important that you update your Retirement Accounts to name who you want those Retirement Accounts to go to. Often this is a large asset.
If you want one-half of the IRA to your new spouse, and one-half to your Adult Children, you can do so. (Company Retirement Accounts bylaw may require that your spouse is named as your Death Beneficiary).
Do the same with your Life Insurance and Annuities. Be up to date with whom you name as the Death Beneficiary.
Payable to Your Estate:
Also you should note that if you do not name a “Death Beneficiary” that IRA or Life Insurance will likely be payable to your “Estate”. That forces that asset to go through the expense, delay and publicity of Probate Court. Then it will go to whom you have named as beneficiary of your Will or Pour Over Will and Trust.
The State Decides your Beneficiaries:
If you do not have a legally valid Trust or Will the State of North Carolina determines where your assets will go. Hence the saying, “If you don’t have an Estate Plan, the State has one for you”. You may not like the shirt tail relative your hard earned assets go to.
(Be careful doing DIY or some version of on-line legal documents. Your legal Estate Plan should be properly done by an experienced licensed Estate Planning Attorney. You are leaving everything you own and have earned in your lifetime to those people that you love the most. Make sure that it is done correctly.)
Taxed Investment Accounts and Bank Accounts:
Your Taxed Investment Accounts may be “Payable on Death” or “Transfer on Death”. This means that you may be able to name a Death Beneficiary on that Taxed Investment Account. If that is the case, again it will go under the terms of the “Contract”. The Investment House has no choice but to pay it to who you named. Make sure you have the proper people named.
Bank Accounts act exactly the same way, if they are “Payable on Death” or “Transfer on Death” accounts.
Accounts that you own jointly with someone else, whether it is your Spouse or an Adult Child, may go immediately to the survivor of that account when you pass. This is normally where the account is setup as “Joint with Right of Survivorship”. Again, this account will move to whomever you own it with jointly. This is regardless of what is stated in your Trust or Will. It is similar to a “Payable on Death” or “Transfer on Death”. The Joint Account Owner may be an Adult Child who is helping their senior parent handle their affairs. It could also be your Spouse.
Often remarriages involve a jointly owned house. The house maybe owned as “Joint Tenancy with Right of Survivorship” or “Tenancy by the Entireties”. This last title is a legal term that refers to when a Husband and Wife own real estate together. That House automatically moves to the surviving Spouse, no matter what your Trust or your Will says.
If you own a House Jointly as “Tenants in Common” you own a half interest in the House. You can leave your one-half undivided interest in that House to whoever you want.
Specific Personal Property:
If you want to leave specific items of Personal Property such as jewelry, guns, your pets, family antique furniture, family Bible, or other heirlooms or valuable pieces of Personal Property to another person you can do so by specifically mentioning them in your Trust or Will, or you can mention them in a Memorandum of Personal Property that may be incorporated into your Trust.
Anytime you update your Estate Plan review the title on Joint Land, Joint Accounts, and Assets that are “Payable or Transfer on Death” or have a named Death Beneficiaries. Failure to correctly and legally have them setup can lead to disinheriting your loved one or charity regardless of what your Trust or Will states.
We will have more “Tough Talks” in our future Blogs. Stay tuned.
At the Law Firm of Steven Andrew Jackson, Attorney and Counsellor at Law, we have helped hundreds of families protect themselves and their loved ones, avoid Estate Taxes and Probate Costs, and keep their Estate Plans current with the law through The Customized Protective Estate Planning Solution™.