Complete Estate Planning

By David DeRose, Esq.

When I discuss preparing a Last Will and Testament with a client, we talk about the client's wishes regarding distribution of the property that has been accumulated throughout their lifetime. A will transfers these assets to the chosen beneficiaries (those named to inherit). This typically takes the form, for instance, of a father or mother leaving the house, vehicle, bank accounts, stocks or bonds to children or other family members. Discussing just a will, however, does not go far enough. Complete estate planning involves much more.

A will is limited to transferring property that is owned solely by a person at the time of death. Some assets, however, are not subject to the terms of the will and pass directly to named beneficiaries. Resources such as life insurance policies, annuities, various types of retirement or pension accounts, or individual retirement accounts typically give the ability to directly designate a beneficiary to receive such assets.

It is therefore important to analyze not only assets that will pass by the terms of the will, but all of the other assets that will be owned at the time of death. Coordinating how all assets will pass is crucial to a sound estate plan. We want to make sure each asset winds up in the correct hands and that there are not any unintended results.

Consequently, care must be used in naming all beneficiaries. For example, with retirement accounts or life insurance policies, a primary beneficiary and an alternate beneficiary can be named. If married, one spouse will usually name the other spouse as the primary beneficiary. As alternate beneficiary, the parties might name all of their children or limit it to just one child out of many.

Sometimes designating beneficiaries on policies is done in a hurried manner, without giving full attention to the designation. Many people fill out a form and don't go back and review that form for many years. It is not uncommon to find that an individual has named the oldest child as the beneficiary and forgotten to update the form after having other children. Sometimes people incorrectly assume that the oldest child will divide the proceeds of the resource with siblings, but there is no legal obligation to do so.

Care should also be taken in naming minor individuals as beneficiaries since that may create other problems. Until someone is 18 years of age, they cannot take proceeds of insurance or retirement accounts into their own name for their own use. Naming a minor on a life insurance policy, a retirement account or an annuity will ultimately result in court action to preserve that money until the minor attains the age of eighteen. A simple way around that problem would be for an individual to designate their "estate" as the alternate beneficiary of such assets.

By designating the estate as the beneficiary, the resources that would otherwise pass directly to an individual can be channeled through the terms of a person's will which contains a designated trust for particular beneficiaries. In this fashion, a parent can guide those proceeds to a particular trustee to hold that money and use that money for the child or children beyond age eighteen. The parent can choose a more mature age at which they want their child to have full access to the funds.

Using an "estate" designation as a beneficiary is a simple solution but it also comes with certain cautions. Those proceeds that go through an estate can be subject to claims of creditors at the time of death, if any creditors exist. When an asset passes directly to a named beneficiary through a life insurance policy, an annuity contract, or an IRA, it is not subject to the claim of a creditor.

On the other hand, if a person does not name a beneficiary on such policies or accounts, then these resources will pass into the person's estate to be distributed per the terms of the will. A will must be drafted to take all of this into account. It is important to plan carefully because there are tax consequences and estate administration costs that must be considered.

Our firm will explore with you all of the resources that you own or control so that you make the wisest choices regarding your assets and beneficiary designations and insure that these choices are consistent with your overall estate plan. Your loved ones will be thankful that you took the time and effort to make things easier on them.