The last article, Bob and Mary had one more step to complete their financial plan; they had to prepare their estate plan. We discussed some very basic tools and considerations that they might consider.
The last article, Bob and Mary had one more step to complete their financial plan; they had to prepare their estate plan. We discussed some very basic tools and considerations that they might consider. In this article I want to conclude estate planning by talking about two particular areas; beneficiary designations and avoiding probate.
Again, I want to remind you that I am an investment advisor and not an attorney. For comprehensive and expert legal advice, I encourage you to discuss these issues with an attorney.
Beneficiary designations. When you prepare a will or a trust, you designate beneficiaries. You also designate beneficiaries when you open certain financial and insurance products. They are:
When beneficiaries are designated on these products, the assets do not go through probate and therefore are not assessed fees. The assets pass directly to the named beneficiary. Unfortunately, what typically happens is that the only time we think about beneficiaries is when we first sign up for life insurance or the retirement plan. Then we dump our copy into a file or drawer and forget about them. The years roll by, things change and our beneficiary designations become dated.
It is not an uncommon occurrence for an ex-spouse to be the designated beneficiary on an old life insurance policy because no one paid attention. Beneficiary reviews are often overlooked. They should be done with your financial reviews, especially when individuals change jobs, experience a death in the family, divorce or any major change.
Beneficiary designation should also be reviewed when you prepare or update your estate plan with your attorney. It is especially important in blended families where each parent brings children into the marriage.
I recently experienced this first hand when my mother passed away. A number of years ago, she was the beneficiary of my father's retirement pension and savings plan when he passed. When she recently passed away, the pension ended but the savings account could have passed onto the beneficiaries without going through probate. However, because she never re-designated new beneficiaries; the assets had to go through probate. No one knew and when she conducted her last legal review; no one paid attention to it.
Avoiding probate. Again, this is a basic discussion. There are a couple of tools that can assist you in avoiding probate.
Trusts. In the last article, we discussed trusts and the fact that all assets named in the trust bypass the probate process, which saves time and money.Joint ownership. This is when two or more people hold joint ownership of property. The property may include real estate, a business, bank accounts, brokerage accounts, etc.There are different kinds of joint ownership but I will focus on one called joint tenancy with right of survivorship. This type of ownership avoids probate because when an individual passes away, their interest in the property is automatically inherited by the other owner, regardless of instructions in the deceased's will or living trust.
Now there are risks with joint ownership as well. If the person you have joint ownership with is financial loser, your assets might be subject to claims of the other owner's creditors. There is an old joke going around that says if you want to become wealthy quickly; open a joint account with somebody who has a lot of money. I'm sure a few of Hugh Hefner's ex-wives had that in mind when they married him.
n Payable on death (POD) accounts. This type of registration allows the ownership of certain assets to pass automatically onto the person named without the risk of joint ownership the transfer of these assets avoids probate. Just ask your banker or broker to set it up. Payable on death accounts may be used on assets such as:
– Bank accounts
– Mutual funds
– Brokerage accounts
Transfer on death (TOD) deed. This works like a POD account except it is used for the largest investment most of us ever make, our home. It's like a regular deed used to transfer real estate, with a crucial difference; it doesn't take effect until your death and it bypasses probate. Kansas and Missouri allow TODs, but not all states do. Be aware that Kansas statutes require specific language in the deed to be legal.Previous articles are posted on my web page at http://theretirementexperts.us/. If you would like to comment or make any suggestions, contact me at larrymartin@ theretirementexperts.us or call at 651-4321.
Larry Martin is a registered investment advisor offering advisory services through Main Street Advisor, LLC (MSA). The opinions expressed in these articles may not represent those of MSA. 1407 Main Street, Hays, KS 67601. The Consultants Financial Services, LLC and MSA are not affiliated.