Sometimes you think you’re doing everything right, and things still go wrong.
For example, a married couple may meet with an estate-planning attorney to draft a trust document and will. One spouse falls off the perch, and shortly thereafter the survivor discovers that accounts are not set up to transfer assets in the manner intended. Things like this happen all the time.
Take the example of Ralph and Sue. It was a second marriage for each spouse. They had no children together, but Sue had two children from her first marriage. She and Ralph had been married for ten years when they received the devastating news that Sue had pancreatic cancer.
Both agreed that Sue’s assets would be divided equally between Ralph and her two children. But here’s the problem. Most of Sue’s assets were in her 401(k), which named Ralph as the beneficiary. No one had thought to change that. When Sue died, her company was legally bound to distribute the account assets only to Ralph. He rolled over the assets into his own IRA, withdrew the requisite amount for the children, and paid the taxes. Had the children been listed as beneficiaries as well, the tax costs would have been far lower.
Even those who have never met with an attorney to draw up a will or power of attorney are often engaged in estate planning. It happens every time a person opens an account or names a beneficiary on an IRA, 401(k) or life insurance policy. Even if a person has a will or a trust, account titles and beneficiary designations take precedence over these documents.
Here’s another example. George, a successful man in his 80s, had accounts with a number of different brokerage firms. Many of these accounts listed only George or only his wife as the owner. George wanted to create a trust and change the account titles to reflect the trust as owner. Unfortunately, George’s wife died before this could be completed and the accounts had to go through probate. This is costly and time consuming.
Many investment firms and banks don’t discuss the implications of account beneficiaries. Consequently, it is the responsibility of the account holder to make sure that beneficiary information is consistent with wills and trusts. When an account is jointly titled or has a direct beneficiary, it is not subject to probate. Given the expense and time involved, it is important to pay attention to naming beneficiaries. Retirement accounts, life insurance policies and annuities all offer the opportunity to name a beneficiary. It’s important to regularly review this information and make sure that it is up to date with your wishes.
For more information, please read:
Hidden estate planning mistakes that have horrible consequences | MarketWatch