Think your estate planning is done once you’ve gone to the trouble of making a will? Think again. All your hard work can be undone with the stroke of a pen when you open a bank, brokerage, or retirement account. Investors have the option of naming beneficiaries directly on a wide range of financial products. The appeal: When the account owner dies, the assets go directly to the beneficiaries named on the accounts, bypassing the sometimes long and costly probate process. The problem: Because these beneficiary designations override your will, they need to be carefully coordinated with your overall estate plan.
The Wall Street Journal’s reporter Carolyn Geer wrote a detailed article on the topic: “Most Common Mistakes in Naming Beneficiaries“. Carolyn quotes an estate-planning attorney in Paramus, N.J. “People don’t realize the importance of this, a carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill”.
Another pitfall can occur when a trust is drawn up but not funded. What does that mean? All property held in the name of the trust must have a change of ownership. You no longer hold ownership of your assets as an individual. You hold them as trustee. If titling of the account is not changed, for instance to “John Smith, trustee for the Smith Living Trust”, none of the property is deemed owned by the trust. If you die, your estate may not avoid the costly and drawn out process of probate. The value of the trust won’t be worth the paper it’s written on! Check out our California Probate and Estate Settlement FAQ and our Estate Planning FAQ to evaluate whether a trust is right for you.
Last but not least is the importance of reviewing or establishing a Power of Attorney. Some time ago I wrote an article on the topic of “Why Powers of Attorney Need to be Reviewed and Updated“. This article talks about why having a Power of Attorney is an important part of your overall estate plan.
You’d be surprised how easy it is to undo good planning because a bank employee was “just following procedures”, or a loan officer says the lender requires the property be titled in your name when refinancing or purchasing a home. We recommend our clients review their beneficiary designations, account ownership, deeds, and estate planning documents every few years, but certainly after a life-changing event.