Post by Admin/YBB on Apr 15, 2024 13:34:48 GMT -6
Beneficiaries – Accounts, Wills, Living Trusts
One should ALWAYS have a Will or Trust.
This is because the government has a DEFAULT Will for everybody, and one may not like what happens with that. Moreover, the PROBATE court will appoint an EXECUTOR at deceased ESTATE’s expense if there isn’t one named (and that may be costly).
We hear horror stories of celebrities and billionaires dying INTESTATE (i.e. without Will; Howard Hughes, Prince, etc). Then, all goes to the estate that has to go through probate and all details become public in the court records and are searchable forever. Basically, the idea of probate is to make a public announcement that anybody who has claims on the deceased should come forward by a certain date or lose those claims, so the related public disclosures.
Tools to avoid probate are POD/TOD designations in taxable a/c, joint a/c (taxable), retirement a/c and insurance with beneficiaries, Wills, living trusts, etc.
So, if there is POD/TOD designation in taxable a/c title, it will obviously be recognized for quick transfer. Joint a/c (taxable) will also transfer quickly and simply.
Retirement a/c (401k, 403b, IRA) and insurance require beneficiaries and should transfer easily. But if beneficiaries are missing or not living, then the estate is the default beneficiary. We hear horror stories here too. If the beneficiaries aren’t updated, then a significant amount of money may go unintentionally to a former spouse, creating troubles for the current spouse and children. Courts have held the validity of these outdated beneficiary designations (after the fact when 401k/403b disposed the money according to beneficiary information in their records) – because there is a possibility that they were intentional. Anything a Will says about retirement a/c and insurance is ignored.
Beyond these, OPTIONAL beneficiary designations allowed in some regular financial a/c may not be helpful and may cause headaches. Even if they are held valid, their dates relative to the dates of Will or trust may matter. Typically, the LATEST record created is held valid; even deathbed Will changes are valid if properly signed and executed. So, one should avoid creating confusion with these optional beneficiaries. It’s best to specify beneficiaries where required, but use the other tools mentioned above for the rest.
Each state has a SMALL-ESTATE limit for probate process exemption. If there are assets over those limits after auto-transfers, they have to go through (public) probate. When people create living trust, it’s important to retitle assets in the name of the trust, otherwise, the trust is useless. EACH living trust also has the so-called POUR-OVER-Will that specifies the disposition of whatever is leftover and that better be under the state’s small-asset limit. These small-estate limits vary a lot – CA, $184.5K; IL $100K; VT only $10K. In many states, just owing a car and/or house, and having some spare change in a checking a/c, will make the estate portable.
www.getdynasty.com/what-is-a-small-estate-affidavit-the-limits-for-each-state/
www.justia.com/probate/probate-administration/small-estates/small-estates-laws-and-procedures-50-state-survey/
Beneficiaries come into picture only after the a/c holder is deceased. PRIMARY beneficiaries are the first in line, then the CONTINGENT beneficiaries. There can be named beneficiaries, defined beneficiary CLASSES (e.g. all my children, or grandchildren); there can be PER STIRPE specifications (by family branch). In annuities, terms used may be 2nd ANNUITANT or SURVIVOR (that includes the a/c holder); so, if an annuity specifies 50% to survivor, there may be unintended surprises. People and NON-PEOPLE (trusts, organizations, charities, pets) beneficiaries may have different limitations.
There are special considerations for beneficiaries for accounts such as annuities, 529, 529 ABLE, UTMA, HSA, DAF.
It’s a good idea to consult estate or elder attorneys for complicated situations.
One should ALWAYS have a Will or Trust.
This is because the government has a DEFAULT Will for everybody, and one may not like what happens with that. Moreover, the PROBATE court will appoint an EXECUTOR at deceased ESTATE’s expense if there isn’t one named (and that may be costly).
We hear horror stories of celebrities and billionaires dying INTESTATE (i.e. without Will; Howard Hughes, Prince, etc). Then, all goes to the estate that has to go through probate and all details become public in the court records and are searchable forever. Basically, the idea of probate is to make a public announcement that anybody who has claims on the deceased should come forward by a certain date or lose those claims, so the related public disclosures.
Tools to avoid probate are POD/TOD designations in taxable a/c, joint a/c (taxable), retirement a/c and insurance with beneficiaries, Wills, living trusts, etc.
So, if there is POD/TOD designation in taxable a/c title, it will obviously be recognized for quick transfer. Joint a/c (taxable) will also transfer quickly and simply.
Retirement a/c (401k, 403b, IRA) and insurance require beneficiaries and should transfer easily. But if beneficiaries are missing or not living, then the estate is the default beneficiary. We hear horror stories here too. If the beneficiaries aren’t updated, then a significant amount of money may go unintentionally to a former spouse, creating troubles for the current spouse and children. Courts have held the validity of these outdated beneficiary designations (after the fact when 401k/403b disposed the money according to beneficiary information in their records) – because there is a possibility that they were intentional. Anything a Will says about retirement a/c and insurance is ignored.
Beyond these, OPTIONAL beneficiary designations allowed in some regular financial a/c may not be helpful and may cause headaches. Even if they are held valid, their dates relative to the dates of Will or trust may matter. Typically, the LATEST record created is held valid; even deathbed Will changes are valid if properly signed and executed. So, one should avoid creating confusion with these optional beneficiaries. It’s best to specify beneficiaries where required, but use the other tools mentioned above for the rest.
Each state has a SMALL-ESTATE limit for probate process exemption. If there are assets over those limits after auto-transfers, they have to go through (public) probate. When people create living trust, it’s important to retitle assets in the name of the trust, otherwise, the trust is useless. EACH living trust also has the so-called POUR-OVER-Will that specifies the disposition of whatever is leftover and that better be under the state’s small-asset limit. These small-estate limits vary a lot – CA, $184.5K; IL $100K; VT only $10K. In many states, just owing a car and/or house, and having some spare change in a checking a/c, will make the estate portable.
www.getdynasty.com/what-is-a-small-estate-affidavit-the-limits-for-each-state/
www.justia.com/probate/probate-administration/small-estates/small-estates-laws-and-procedures-50-state-survey/
Beneficiaries come into picture only after the a/c holder is deceased. PRIMARY beneficiaries are the first in line, then the CONTINGENT beneficiaries. There can be named beneficiaries, defined beneficiary CLASSES (e.g. all my children, or grandchildren); there can be PER STIRPE specifications (by family branch). In annuities, terms used may be 2nd ANNUITANT or SURVIVOR (that includes the a/c holder); so, if an annuity specifies 50% to survivor, there may be unintended surprises. People and NON-PEOPLE (trusts, organizations, charities, pets) beneficiaries may have different limitations.
There are special considerations for beneficiaries for accounts such as annuities, 529, 529 ABLE, UTMA, HSA, DAF.
It’s a good idea to consult estate or elder attorneys for complicated situations.