What are the Most Common Beneficiary Designations Mistakes?
Common mistakes on beneficiary designation forms.

What are the Most Common Beneficiary Designations Mistakes?

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

  1. Failing to name a beneficiary. Many people never name a beneficiary for retirement accounts or life insurance. If you don’t name a beneficiary for life insurance or retirement accounts, the financial company has it owns rules about where the assets will go after you die. For life insurance, the proceeds will usually be paid to your estate. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
  2. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your attorney about creating a trust to be named as the beneficiary.
  3. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
  4. Failing to update your beneficiaries. Since there are life changes, make sure your beneficiary designations are updated on a regular basis.
  5. Failing to review beneficiary designations with your attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

 

Shared Housing: What Those ‘Golden Girls’ Got Right

A 75-year-old woman realized that she had reached the point, where she couldn’t live alone anymore. Deborah Knox had Parkinson’s disease, and needed help, if she was going to stay in her three-bedroom house. However, when her new roommate came in with a coffee table and insisted it be featured in the living room, the two had to work things out.

Knox lost the living room battle, but said she’d rather do that, than look at her coffee table in an assisted living setting, as explained in AARP Bulletin’s article “Housemate Wanted. Must Lift Heavy Objects.”

This is not unusual for the newest retirement dynamic — senior housemates. Older Americans are seeking companionship, mutual care and in some cases, a less expensive living situation. The number of households headed by renters 65 and older is expected to balloon by 80%, according to the Joint Center for Housing Studies at Harvard University.

A small industry has emerged from this need. There are companies that match housemates, doing background checks and matching up older renters. There are also companies that focus on older homeowners with housemates, who can also help with chores.

The Golden Girls model is alive and well. The trend is more common among women, possibly because women tend to live longer than men and may feel more comfortable living in a communal setting. However, there are challenges. Living with a housemate isn’t without issues. A renter may feel unsettled by the lack of control, while a homeowner may feel agitated at having to share possessions and space.

Sharing houses may not be the American dream, but it may present a solution for seniors who want to maintain their independence.

Shared housing takes work. It also benefits from rules that are written down and agreed upon in advance. One woman purchased an eight-bedroom house in Portland and rented rooms to women who were like her — 55 and older and single. The tenants make their house rules and collectively decide who joins the community. So far, all but three rooms are filled.

Finding a roommate who isn’t family to live with, requires some caution, advise experts. Some services offer a two-week trial and prepare for a confrontation if it does not work for you. Explore all issues, especially the thorny ones, in your first interviews. If your politics or spiritual practices are vastly different, there may be no way to overcome that. You should also discuss the details. Does one person like to watch television all the time, at full blast? If you prefer a quiet house, that’s not going to work out.

Put it in writing, from how costs will be divided to how bills will be paid. Who will be responsible for what chores? Are overnight guests permitted? Does the homeowner have the ultimate say? The more details you can cover, the less room for quarrels.

Remember to focus on the good too: a communal dinner, weekly or daily, and regular outings, can foster friendships in this new phase of life.

Reference: AARP Bulletin (March 14, 2019) “Housemate Wanted. Must Lift Heavy Objects

Will Contests: What’s Happening to Tom Petty’s Estate?

Rocker Tom Petty’s widow, Dana York Petty, planned to include unreleased tracks from her late husband’s celebrated 1994 solo album as part of a 25th anniversary edition box set.

However, Tom’s daughters Adria and Annakim, his children from a previous marriage, are engaged in a will contest, have blocked the release, according to iHeartRadio’s article, “Tom Petty’s Widow, Daughters Battling Over His Estate.”

Dana says the daughters are interfering with her ability to manage Tom’s legacy. She’s reportedly requested that a judge name a day-to-day manager for the estate.

Adria argues that she and her sister were promised an equal share of control in their father’s estate, according to his will. She says her father’s “artistic property” was supposed to be placed into a separate company to be jointly administered by the three women. However, Dana disagrees.

Annakim seems to reference the battle in a recent Instagram post. She displayed a photo of her father with the caption, “We don’t sell out. No Vampires 2019.”

A subsequent reply in the comments section mentions Petty’s will.

Wildflowers was initially designed to be a double album, with Petty completing more than 25 songs in the initial sessions. However, he was convinced by his record label to take some some songs off for the final version.

Throughout the years, a few of the extra songs were released on various collections. However, Tom never relinquished his idea of releasing the set as a double LP.

Petty was reportedly planning a Wildflowers tour, before his death in October of 2017, to showcase all the leftover material.

Reference: iHeartRadio (April 3, 2019) “Tom Petty’s Widow, Daughters Battling Over His Estate” 

What You Need to Know, If the Next Generation Is Inheriting the Family Farm

Understanding the tax liabilities for inheriting, buying or being gifted the family farm, is critical to avoid a costly financial misstep, says Capital Press in the article “The family farm is coming to you: What’s next?” You’ll need to work closely with your estate planning attorney and CPA to make sure you understand the basis in the real estate, especially if the property is sold and taxes will need to be paid. How you inherit the property, makes a big difference in the tax bill.

If you receive the property as a gift from parents while they are alive, then you retain their income tax basis in the property. If they inherited it also, they likely have a low tax basis. Farms with a basis of $50,000 that are now worth $2 million are not unusual. If the farm is sold, there will be a capital gains tax on the difference between the basis and the present value, which could be more than $600,000.

If you inherit the farm from a parent and then sell it for $2 million, its value at the time of their death, you would not have to pay a capital gains tax. That saves $600,000.

If you bought the farm from a parent’s trust or estate for $2 million, then you have a $2 million basis in the property and will probably not owe any property gains tax, if you eventually sell it for $2 million.

Just be sure that you comply with all reporting requirements. Failure to comply, means that a portion of the estate tax will have to be repaid.

If you own the farm without other family members, you should start planning your next steps. To whom do you want to pass the farm? If you want to keep the farm in the family, work with an attorney who is familiar with farm families, so that you can keep working the land and reduce any disputes.

Farmers often separate business operations from the land, with the operations held by one business and the land held by another entity. This allows the estate planning attorney to plan for succession in how operations and land are transferred to the next generation. It also provides asset protection, while you are alive.

Make sure that your farm succession plan and your estate plan are aligned. A common issue is finding that buy-sell documents don’t align with the will or trust. Some farmers use a revocable living trust as a will, so they can incorporate estate tax planning and transition the farm privately upon death.

Reference: Capital Press (March 24, 2019) “The family farm is coming to you: What’s next?”

 

Here’s One Way to Handle the Son-In-Law You Hate

When Gillian Williams died in May 2017, it’s unlikely that she expected to be at the center of an international spotlight on her family’s life. She left behind a married daughter, Julie Fairs, who is accused, along with her husband Brian, of falsifying a signature on her mother’s last will and testament. The mother’s own sister testified that her sister would never have left her daughter anything, because of how much she disliked her son-in-law, reports Above the Law in the article “What To Do When You Hate Your Son-In-Law: A Practical Lesson in Estate Planning.”

The matter became public when it went to trial. There’s been a lot of nasty family business being shared. Most people avoid going to trial for will contests, since the underlying emotions come out in full view.

Not everyone has friendly family relationships with in-laws. Frequently, the in-law relationship is prickly at best. There is no law that you must like your son-in-law. However, the law presumes that you like your child enough to include her in your estate, regardless of how you feel about her spouse. That means that if there is no surviving spouse, children are permitted to be the “natural object of your bounty.” In other words, these are the individuals who will receive your assets when you die, based on social and public policy and the law.

There are issues in estate planning, when a person wants to exclude a child because of their dislike of the child’s spouse. You may want to exclude a child out of concern that the spouse will mishandle the money or benefit from the money in a divorce. Sometimes parents can’t get past their dismay over a child marrying against their wishes. Disinheritance is not an unusual punishment. However, increased scrutiny is going to be applied to the review of a will, when a child is excluded.

When one child is disinherited, it colors their relationship with their siblings. The beneficiaries and the executor are left to defend the decedent’s decision. That is not easy to do, unless an explanation of why this happened was done beforehand.

There are options to disinheritance, if the child’s spouse is an issue. A beneficiary’s share can be held in a continuing trust, so the spouse does not have access to the funds. The assets can be protected and preserved, in the event of a divorce or just for general money security. It should be recognized that while inheritances are generally protected in divorce, the second the monies are co-mingled, they become joint property. A trust is often the best way to protect an inheritance in this situation.

Another tactic is for the person to skip a generation and instead make a bequest to the grandchildren. The option works best when the funds are not significant, since the parent may be insulted by the decision to leave a bequest to their children and this could pit the child against their own child (the grandchild).

Dividing the estate among the children in unequal shares can be done so as not to completely disinherit a child, but to leave less money. This also holds the potential for creating bad feelings between family members.

The last will and testament is a very permanent document and may not be the right forum to be used to let feelings be expressed or take a stand about an unfavorable life decision by an adult child. The impact of this decision can also have long lasting effects, including lawsuits and family fighting. It is also likely to create a battle between the child and their spouse.

A conversation with an estate planning attorney, who has likely seen this situation hundreds of times in their practice, should be able to help sort out the best solution. There may be a way to avoid conflict, or at least to make sure everyone is clear from the get-go, as to what is going to happen in the future, and why.

Reference: Above the Law (March 12, 2019) “What To Do When You Hate Your Son-In-Law: A Practical Lesson in Estate Planning 

What is the Best Way to Leave an Inheritance to a Grandchild?
Gifts to Grandchildren

What is the Best Way to Leave an Inheritance to a Grandchild?

Leaving money or real estate to a child under the age of 18 requires careful handling, usually under the guidance of an estate planning attorney. The same is true for money awarded by a court, when a child has received property for other reasons, like a settlement for a personal injury matter.

According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.

Until the child reaches age 18, the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.

The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will, and no trust?

A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets, if there is no will. Another way a child might receive assets, would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?

The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.

In Arizona, the threshold is $10,000. Check with a local estate planning attorney to determine your state’s limitations.

If the asset is valued at more than $10,000, or whatever the threshold is for the state, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.

The conservator is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.

Making parents go through a conservatorship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.

Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.

Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”

 

When Do I Need a Revocable Trust?
Revocable Living Trust

When Do I Need a Revocable Trust?

A will is a legal document that states how your property should be distributed when you die.  It also names guardians for any minor children. Whatever the size of your estate, without a will, there’s no guarantee that your assets will be distributed, according to your wishes. For those with substantial assets, more complicated situations, or concerns of diminished capacity in later years, a revocable trust might also be considered, in addition to a will.

Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a revocable trust, also called a “living trust” or an inter vivos trust, is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will. A revocable trust, like a will, details dispositive provisions upon death, successor and co-trustees, and other instructions. Upon the grantor’s passing, the revocable trust functions in a similar manner to a will.

A revocable trust is a flexible vehicle with few restrictions during your lifetime.  you usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust, by retitling them. This movement has no income or estate tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle.

A living trust has some advantages over having your entire estate flow through probate. The primary advantages of having the majority of your assets avoid probate, is the ease of asset transfer and the lower costs. Another advantage of a trust is privacy, because a probated will is a public document that anyone can view.

Even with a revocable trust, you still need a will. A “pour over will” controls the decedent’s assets that haven’t been titled to the revocable trust, intentionally or by oversight. These assets may include personal property. This pour-over will generally names the revocable trust—which at death becomes irrevocable—as the beneficiary.

Another reason for creating a revocable trust is the possibility of future diminished legal capacity, when it may be better for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial protection, by obviating the need for a court-ordered guardianship.

Talk to an experienced estate planning attorney about the best options for your situation to protect your estate and provide the peace of mind that your family will receive what you intended for them to inherit, with the least possible costs and stress.

Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”

 

Should Pets Be Part of Your Estate Plan?
Pet Trust

Should Pets Be Part of Your Estate Plan?

Most of us don’t have the luxury (or the need) to leave our pets $12 million, but to make sure that our pets are cared for, having a legally enforceable trust for a pet, which is allowed in New York State, can provide peace of mind. That is part of the answer to the question posed by the Times Herald-Record in the article “Who’ll care for your pets when you’re gone?”

A will is a document used in a court proceeding called probate, if you die with assets that are only in your name. When the will goes through probate, it becomes a public document. A trust, on the other hand, is a document that does not become part of the public record, unless it was created under a will. Some people use trusts for their beloved pets, to pay for their care and maintain their lifestyle. Some pets lead fancier lives than others!

Most people leave the care of pets in the hands of friends or relatives and hope for the best. Visit any animal shelter and you’ll see the animals whose owners could not take care of them, or whose friends or family members intended to take care of them, but for whatever reasons, could not care for them. Putting a pet trust into your estate plan, is a better way to care for pets, if you outlive them.

The pet trust has several steps, and an estate planning attorney will be able to set it up for you. First, you need to appoint a trustee of the trust funds. This person is in charge of the financial aspect of the trust, from paying vet bills, making sure pet health insurance premiums are paid, to providing money for the caretaker to buy supplies. It’s a good idea to have a secondary trustee, just in case.

Next, you name a caretaker of the pet. This person can be the same as the trustee, although it may be better to name a different person, to create some checks and balances on the funds. You can, if you like, give the trustee the right to appoint a caregiver or a back-up caregiver. Make sure you discuss all of these details with the trustee and the caregiver and their back-ups to be sure that everyone understands their roles, and all are willing to take on these responsibilities. Some pets can live a long time, and you want to have everyone understand what they are undertaking.

Third, you’ll need to designate the amount of money to be held in trust for the pets for medical care, daily living costs and support until the pet dies. Don’t forget to include the cost of burial or cremation.

Finally, name the persons or organizations you wish to receive any remaining funds.

An informal letter of instruction to both the trustee and the caregiver would be very helpful. Provide details on the pet’s personality, quirky behavior, preferences for food, treats, play and any information that will help all the parties get along well. You should also provide information on your pet’s vet, any registration numbers for microchips, medical and dental records, medications, etc.

Reference: Times Herald-Record (March 9, 2019) “Who’ll care for your pets when you’re gone?”

 

Are You Retiring in 2019? Here’s What You Need to Know
Preparing for retirement

Are You Retiring in 2019? Here’s What You Need to Know

There are more than few steps you’ll need to complete, before packing up your desk, cubicle or locker and saying good bye to your work family. Even if your 401(k) and IRA is in order, there are things you need to during the last few months of working, says Next Avenue in the article “Tips to Prepare for Retiring This Spring or Summer.”

There’s detailed planning, organization of documents, and additional financial details that need attending. You may also want to start creating your “bucket list” — a list of things you’ve always wanted to do, but never had the time to do while you were working. Getting all of this in order, will speed your waiting time and prepare you better, when the last day of your working life does finally arrive.

Whether you are three months or six months from retirement, here are some tips for your to-do list:

Social Security. Figure out when the best time for you to take Social Security benefits will be. Can you delay it until age 70? That’s when you’ll get the biggest payout. The earlier you start collecting benefits, the smaller your monthly check will be. Take it early, and you are locked in to this lower rate.

Health Care. Figuring out how to manage health care costs, is the single biggest worry of retirement for most Americans. An injury that puts you in a nursing care facility can make a huge dent in your retirement funds, even if it’s just for a short while. This is the time of your life, when focusing on your health is most important, even if you’ve been careless in earlier decades. Evaluate your health status and get check ups with your regular physician and your dentist.

Investments. Check with your HR department about when you’ll need to roll over your 401(k) plan. If you transfer the funds into a low-cost IRA, you may save in fees. Work with your financial advisor to determine what your withdrawal rate will be. You may need to reevaluate some of your retirement goals or consider working part time during retirement for a few years.

Medicare. If you’re almost 65, you can start enrolling in Medicare now. The government lets you start the process within three months of your 65th birthday. Start this process, so you are covered, once you are not on the company’s health care plan.

Expectations. The first six months to a year of retirement can be both wonderful and terrible. While enjoying freedom, many people find it hard to withdraw money from the same accounts they spent so many years building. What if they don’t have enough for a long life? Take a realistic look at your lifestyle, budget, and spending habits, before you retire to make sure you are financially ready to do so. If you think you might work part time, look into the positions that are available in your area and what they pay.

Lifestyle. Often, we are so busy planning for the financial side of retirement, that we forget to plan for the “soft” side: what will you do in retirement? Will you volunteer with an organization that has meaning for you? Write the novel you’ve started on a dozen times? Spend more time with your grandchildren? Travel? What will make you feel like your time is being well-spent, and what will make you fulfilled?

Don’t forget the legal plan. Retired or not, you need to have a will, power of attorney, and health care power of attorney to protect your family, whether you are preparing for retirement or in the middle of your career. Speak with an estate planning attorney to ensure that these important documents are in place.

Reference: Next Avenue (March 6, 2019) “Tips to Prepare for Retiring This Spring or Summer”