Everyone should have an estate plan, whether it’s a simple will or a detailed and complex one with trusts and strategies for multiple generations. The more care and thought put into the plan, says a recent article, “5 Common Estate Planning Mistakes to Avoid” from Kiplinger, the better the outcome. There are some common mistakes you can avoid with a little foreknowledge.

Failing to plan for incapacity. People think about creating wills and trusts with their mortality in mind. However, incapacity planning is just as important, in some cases, more important, than death. A good estate plan identifies the people authorized to make important decisions on your behalf concerning finances, health care and other important issues. It also empowers them to do so with powers of attorney. Once you are unconscious or otherwise incapacitated, you can no longer legally assign someone else to act on your behalf. Preparing for others to make decisions for you should not be overlooked.

Neglecting funeral and burial wishes. If you were kind enough to purchase a burial plot and make funeral plans, don’t make your children have to conduct a scavenger hunt. Talk with them about it and tell them where they can find the deed to your plot and the contract with the funeral home. Name a point person who will be in charge of the funeral and burial arrangements and make sure they know your wishes. If you want to be cremated, make it clear to loved ones. The more information you share before your death, the more likely your wishes will be followed.

Not considering the tax implications of transferring property. Don’t leave your loved ones a huge tax bill. It may seem generous to gift property to heirs during your lifetime. However, in many instances, giving when you have passed will create a far smaller tax burden. If your estate planning attorney also understands taxes, he or she can work with you to determine how to minimize taxes and maximize your gifts.

Name back-ups for key decision makers. The unthinkable happens. Spouses perish in the same accidents. If no secondary beneficiary has been named, who inherits the estate? Name additional and alternative beneficiaries in case of unfortunate occurrences. You should name a backup executor, financial power of attorney and health care agent. If a person named in your estate documents cannot fulfill their role because of death, incapacity or other reason, the court will name substitutes.

Forgetting to clarify and update beneficiary designations. If your will says you want all of your children to get an equal share of your estate, but one child is on a joint investment account and another is on a Payable Upon Death checking account, you’ve created potential disputes. It’s important to list out the beneficiaries, their asset shares and create a directive to your bank to set the interests in your accounts upon your death. Your bank may require you to change how accounts are titled to achieve your goals. Therefore, you should take care of this while you are living, so you can make any needed changes.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “Top Five Estate Planning Mistakes” read also these additional articles: What Do You Need to Do When a Spouse Dies? and What If Estate Is Beneficiary of an IRA? and Will Making a Gift Conflict with Medicaid? and Does a Beneficiary have to Pay Taxes on 401(k)?

Reference: Kiplinger (Oct. 20, 2022) “5 Common Estate Planning Mistakes to Avoid”

Life events require planning, even the most heartbreaking, like the death of a spouse. Spouses ideally create a blueprint together so when the inevitable occurs, they are prepared, says the article “The important financial steps to take after a spouse dies” from The Globe and Mail. It may sound cold to take a business approach, but by doing so, the surviving spouse will know what to expect and what to do.

Some people use a spreadsheet to clearly see what their financial picture will look like before and after the loss of a spouse.

There are pieces of information that are vital to know:

• What health insurance coverage does the spouse have?
• Will the coverage remain in place after the death of the spouse?
• Do any accounts need to be changed to joint ownership before death?
• What investments do both spouses have, and will they be accessible after death of one spouse?
• Is there a last will and testament, and where is it located?

Many people are wholly unprepared and have to tackle their entire financial situation immediately after their spouse dies. If they were not involved in family finances and retirement planning, it can lead to costly mistakes and make a difficult time even harder.

If assets are owned jointly as community property, the transition and access to finances can often be easier. This is because the surviving spouse by default, has a “usufruct” over the decedent spouse’s half of the community assets.  However, if one or more of the accounts are only in one name, the surviving spouse will have to wait until the estate goes through probate before they can access funds. If there are bills to pay, the surviving spouse may have to tap retirement funds, which can come with penalties, depending on the accounts and the surviving spouse’s age.

All of this can be avoided by taking the time to create an estate plan which includes planning for asset distribution and may include trusts. There are many trusts designed for use by spouses to take assets out of the probate estate, provide an income source and minimize taxes. Your estate planning attorney will be able to help prepare for this event, from a legal and practical standpoint.

What happens when there’s no will?

No will usually indicates no planning. This leaves spouses and family members in the worst possible situation. The laws of Louisiana will be used to determine how assets are distributed. How much a surviving spouse and descendants will inherit will be based solely on the law. The results may not be optimal for anyone. It’s best to meet with an estate planning attorney and create a will.

Also, keep in mind that a “sweetheart will”, where each spouse gives everything to the survivor, can result in bad long-term care planning.  This is because a “sweetheart will” puts all of the couple’s eggs in one basket for purposes of qualifing for long-term care benefits.  It is usually better to formulate your bequest to your spouse in a secret kind of bequest that few lawyers know about, but a good Board Certified Estate Planning and Administration Specialist can educate you on.  This can often get you qualified easier, even if you don’t have a living trust.

Reviewing beneficiary designations for life insurance policies and retirement accounts should be done every few years. If the beneficiary is no longer part of the account owner’s life, the designation needs to be updated. If the beneficiary had died, most accounts would go into the probate estate, where they otherwise would pass directly to the beneficiary.

If your spouse has died, I can ascertain if you need to start the probate process.  Sometimes it is not necessary, and your heirs can wait to open your spouse’s succession at the same time yours is opened.  If you do need to open a succession, I can often have the succession finalized in a matter of a few weeks for a flat fee.  Also, once your spouse has died, this is the best time to engage in estate planning for your future.  I offer both probate services as well as estate planning plans at a flat fee.  In addition, I provide a free no obligation initial consultation to explore your options.  

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “What Do You Need to Do When a Spouse Dies?” read also these additional articles: What If Estate Is Beneficiary of an IRA? and Will Making a Gift Conflict with Medicaid? and Does a Beneficiary have to Pay Taxes on 401(k)? and The Risks of Creating Your Own Estate Plan

Reference: The Globe and Mail (July 13, 2022) “The important financial steps to take after a spouse dies”

Usually when an estate planning attorney comes across an estate named as a beneficiary, all they can do is shake their heads. It’s already too late to make any changes and, in most cases, the results are bad, reports a recent article from Kiplinger that warns “Don’t Name Your Estate as Your IRA Beneficiary.”

This usually occurs because the person was in a hurry or didn’t know better.  It is sometimes because they don’t know who should become the beneficiary and are advised to just write down their estate to move the application process along. The problem comes after years go by, the account owner dies and the beneficiary designation is revealed.

The SECURE Act eliminated what was once known as the “Stretch IRA,” where beneficiaries could take withdrawals based on an IRS table of life expectancy. The SECURE Act changed how IRA distributions are made and with a few exceptions, beneficiaries have ten years to empty the account.

However, the people who are not subject to the ten-year rule include: surviving spouses, disabled individuals, chronically ill individuals and individuals within ten years of age of the original owner.

One additional exception: minor children, until they reach the age of majority, at which point they too must empty the IRA in ten years’ time.

Estates may not use the ten-year rule. They must distribute the funds in an even shorter time period: five years. There are a number of reasons to avoid this:

• The shorter the time period for withdrawals, the higher the potential for higher taxes.
• Higher income levels can lead to higher Medicare charges.
• Higher income levels can also lead to more taxes on Social Security income.
• Assets left directly to a named beneficiary have some protection against creditors.
• Assets in your estate have no protection at all against creditors.
• Higher administration costs for probate fees, legal fees, etc.
• Increased potential for a disgruntled heir to challenge your will.

The problem is solvable, if you act while you are living. Start by reviewing your accounts and identifying beneficiary designations. If you can’t find the beneficiary form, contact the institution, get a new one, complete it and submit it.

Keep in mind that if you don’t name a beneficiary of your IRA, or your beneficiary has already died (such as your spouse) and no contingent beneficiary is named, your estate is by default the beneficiary of your IRA.  Beneficiary planning is an integral part of estate planning, and many of the mistakes I see people make are improper beneficiary planning.

Reviewing beneficiaries is something to be done every three to five years, every time you review your estate plan. Don’t leave this to the last minute—take care of it now.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “What If Estate Is Beneficiary of an IRA?” read also these additional articles: Will Making a Gift Conflict with Medicaid? and Does a Beneficiary have to Pay Taxes on 401(k)? and The Risks of Creating Your Own Estate Plan and Is A Medicaid Planner Right for Me?

Reference: Kiplinger (July 27, 2022) “Don’t Name Your Estate as Your IRA Beneficiary”

There are many complicated rules for inheriting assets in the form of retirement plans, workplace plans and Individual Retirement Accounts (IRAs), says a recent article titled “How Much 401(k) Inheritance Taxes Will Really Cost You” from The Madison Leader-Gazette. Any assets passed from one person to another in the form of a 401(k) are taxable. You’ll want to be prepared.

How are Inherited 401(k)s Taxed?

The inheritance rule for 401(k) tax usually follows the same path as the rules used when making contributions or withdrawals to tax deferred retirement plans. When a person dies, their 401(k) becomes part of their taxable estate.

This means that any taxes due on earnings not paid during the person’s lifetime need to be paid.

Traditional 401(k) plans are funded with pre-tax dollars. This is great for the saver, who gets to defer paying taxes while they are working. When they retire, withdrawals are taxed at their ordinary income tax rate, which is typically lower than when they are working.

There is an exception with Roth 401(k)s, where contributions are made with after-tax dollars and qualified withdrawals are tax free.

How the IRS taxes an inherited 401(k) depends on three factors:

• The relationship between the account owner and the heir
• The age of the heir
• How old the account owner was at the time of death.

Who Pays Taxes on an inherited 401(k)?

The beneficiary who inherits the 401(k) is responsible for paying the tax. They are taxed at the heir’s ordinary income tax rate. This could push the heir into a higher tax bracket.

What Should I Do with an Inherited 401(k)?

If your spouse was the original owner, you may leave the money in the plan and take regular distributions, paying income tax on the withdrawals. You may also roll it over into your own 401(k) or to an IRA. This allows the money to continue to grow tax free, until withdrawals are taken.

Can I Avoid Taxes on an Inherited 401(k)?

The only way to avoid taxes on inherited 401(k) would be to disclaim the inheritance, at which point the 401(k) would be passed to the contingent beneficiary. If you don’t need the money, don’t want the tax headaches, or would rather see it go to another family member, this is an option. Most people pay the taxes.

Planning For Taxes When Creating an Estate Plan

Talk with your estate planning attorney about your taxable assets and how to manage the tax liabilities to your heirs. There are numerous tools to address these and related issues. your heirs will be grateful for your foresight and care.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “Does a Beneficiary have to Pay Taxes on 401(k)?” read also these additional articles: The Risks of Creating Your Own Estate Plan and Is A Medicaid Planner Right for Me? and Alert: Scam Targeting Medicare Recipients and CMS Issues Updated Guidance Intended to Improve Quality of Nursing Home Care

Reference: The Madison Leader Gazette (July 29, 2022) “How Much 401(k) Inheritance Taxes Will Really Cost You”

Many people don’t know that their will doesn’t control who inherits all of their assets when they die. Some assets pass by beneficiary designation. Assets like life insurance, annuities and retirement accounts all pass by beneficiary designation.

Kiplinger’s recent article entitled “Beneficiary Designations: 5 Critical Mistakes to Avoid” lists five critical mistakes to avoid when dealing with your beneficiary designations:

1. Failing to designate any beneficiary at all. Many people forget to name a beneficiary for retirement accounts or life insurance. They may forget, didn’t know they had to, or just never got around to filling out the forms. If you don’t name a beneficiary for life insurance or retirement accounts, the company will apply its rules about where the assets will go after you die. For life insurance, the proceeds will typically be paid to your probate estate. For retirement benefits, if you’re married, your spouse will most likely receive the assets. However, if you’re unmarried, the retirement account will likely be paid to your probate estate, which can have negative asset protection ramifications.
2. Failing to consider special circumstances. Not every family member should get an asset directly. This includes minor children, those with specials needs and people who can’t manage assets or with creditor issues.  Unless you trust the parent(s) of the minor child, consider leaving that child’s share of the asset to a trust for the child and not to the child directly.
3. Misspelling a beneficiary’s name. Beneficiary designation forms can be filled out incorrectly and the beneficiary designation form may not be specific. People also change their names through marriage or divorce, or assumptions can be made about a person’s legal name that later prove incorrect. Failing to have names match exactly can cause delays in payouts, and in a worst-case scenario of two people with similar names, it can result in a court case.
4. Forgetting to update your beneficiaries. Your choice of beneficiary may likely change over time as circumstances change. Naming a beneficiary is part of an overall estate plan, and just as life changes, so should your estate plan. Beneficiary designations are an important part of that plan—make certain that they’re updated regularly.
5. Failing to review beneficiary choices with legal and financial advisers. How beneficiary designations should be completed is a component of an overall financial and estate plan. Involve your legal and financial advisers to determine what’s best for your circumstances. Note that beneficiary designations are designed to guarantee that you have the ultimate say over who will get your assets when you pass away. Taking the time to carefully (and correctly) choose your beneficiaries and then periodically reviewing those choices and making any necessary updates will allow you to remain in control of your money.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “What are Mistakes to Avoid with Beneficiary Designations?” read also these additional articles: Are Testamentary Trusts a Good Idea? and IRS Extends Time to File Portability Exemption Relief to Five Years and Can I Use a Special Needs Trust? and How to Plan in a Time of Uncertainty

Reference: Kiplinger (June 6, 2022) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

The new federal regulation would require many people who inherit money through traditional IRAs, as well as 401(k)s, 403(b)s, and eligible 457(b)s to withdraw funds from the accounts every year over a 10-year period, according to The Wall Street Journal.

Money Talks News’ recent article entitled “How an IRS Change Could Hurt Your Heirs” says that the change would apply to most beneficiaries other than spouses, and would apply to those who inherited money after 2019.

Children 21 and older, grandchildren and most others who get money from an affected account would need to follow the new regulations or rules.

The proposed change would require beneficiaries to take minimum taxable withdrawals every year for 10 years from their inheritance in situations where the original account owner died on or after April 1 of the year of his or her 72nd birthday.

These withdrawals, technically known as required minimum distributions (RMDs), must deplete the account within the 10-year period.

Heirs would pay a penalty of 50% on any RMD amounts they didn’t withdraw according to the schedule defined by the new IRS rules.

The proposed change has the potential to leave your heirs less wealthy. The reason is because the money you bequeath to heirs would have less time to grow in tax-advantaged accounts before they would be forced to withdraw it.

Over time, this can make a big difference in how much money they accumulate from the initial amount you leave them.  In addition, this could allow any creditors of your beneficiaries to seize the mandatory payments, making it harder to asset protect these accoutns without a retirement trust.  In such cases, a retirment turst may still be a good idea.

The proposed rules are designed to clarify changes resulting from the federal Secure Act of 2019.

If the IRS moves forward with the changes, the new rules will add to the growing number of reasons why it makes sense for some people to consider putting money into a Roth IRA instead of a traditional IRA.

With a Roth IRA, the account owner pays taxes upfront As a result, heirs won’t owe any taxes on the money they inherit. Therefore, the new rules wouldn’t apply to Roth IRAs.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “Does Potential IRS Change Have an Impact on Estate Plan?” read also these additional articles: Understanding the Issues of Elder Law and What are the Advantages of a Business Trust? and What Is the Best Asset Protection? and What Happens If My Partner Dies and We’re Not Married?

Reference: Money Talks News (May 13, 2022) “How an IRS Change Could Hurt Your Heirs”

Traditional or non-traditional couples have the option of marrying, but not all couples wish to, according to a recent article from Kiplinger, “Marriage: When You’d Rather Not.”

Planning for a life together without the legal protections provided by marriage means couples of all kinds who decide not to marry must be sure to do estate planning. Otherwise, they may find themselves in life-altering situations concerning property ownership, parental rights, and inheritances. An estate plan is one of the most important protections for unmarried couples. It’s a gift to give each other.

Start with a last will and testament. Unmarried couples need a will if they want to leave each other property. Otherwise, the laws of Louisiana will have co-owned property going first to the children of the partner that died.  If a partner has no children, the property will be left to the family of the partner that died.  The surviving partner may be left being in a position of co-owning property with the deceased partner’s family.  This could be parents, siblings, or cousins. This could result in expensive litigation after death that neither partner intended.  No matter how many decades the couple has been together, if they are not married, they have no legal inheritance rights.

Other estate planning basics are important to protect each other while living. Without documents like a financial power of attorney and a health care proxy for both partners, medical and other health care providers might not allow your partner to make critical health decisions on your behalf. For couples where families disapprove of their unmarried status, asking a parent to make these decisions, especially in an emergency situation, could magnify a crisis or worse, lead to a result neither partner wants.

Accounts with named beneficiaries, which typically include life insurance policies, retirement funds, investment accounts and similar financial products, aren’t distributed by the terms of your will. Instead, they pass directly to beneficiaries on death. Even traditional married couples run into trouble when beneficiary designations are not updated.

Every time there is a life change, including death, birth, break-up, or any big life event, updating beneficiaries is a good idea for all concerned.

Unmarried couples with children need to be especially diligent about estate planning. If a biological parent dies, their assets go to their biological children. However, when the non-biological parent dies, all of their assets could go to other relatives, unless a will is in place and beneficiaries are properly named. What about if the non-biological parent takes the step of legally adopting the children? They should still check on their parental rights. If accounts do not have beneficiaries named, the assets will go to next of kin, a parent or sibling and not the child or partner.

Home ownership is another financial issue to tackle for unmarried couples. They need a document clearly stating how the home is owned, how much each invested in the home, who is responsible for mortgage and tax payments, how to divide the home if it’s sold and who has the right to live in the home if the couple breaks up or if one dies or becomes disabled. If a home is solely in one person’s name and the other partner dies, the surviving partner may end up being evicted if the right protections are not in place.

For unmarried couples, meeting with an estate planning attorney is necessary to protect each other now and in the future.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

If you liked this article, “What Happens If My Partner Dies and We’re Not Married?” read also these additional articles:  What Does a Blended Family Need to Know about Finances? and Shocking! 8 Things That Can Spark a Will Contest and SCOTUS Rules States Can Recoup a Larger Share of Injury Settlements and Three Estate Planning Options for Your Art Collection

Reference: Kiplinger (June 16, 2022) “Marriage: When You’d Rather Not.”

TOD means “transfer on death”.  This is the person or persons named on your bank account to have the account transferred to upon death who legally becomes the owner of the bank account after you die.  Investopedia’s recent article entitled “Who Can Be a Transfer on Death (TOD) Beneficiary?” explains that the rules are quite broad when it comes to naming TOD beneficiaries.  But a TOD applies to most common law states, not Louisiana.

In Louisiana, we do not have what I would properly term a “transfer on death” statute.  We have a POD, meaning “Payable on Death” statute.  What is the difference?  A POD statue allows the bank to pay out the account balance to the payee named by you, but is not necessarily the proper owner of the account balance as per your last will and testament, or alternatively, Louisiana’s intestate inheritance regime.

In other words, the bank is authorized, even directed, to pay out your bank account balance to your person(s) named in your POD, BUT PURSUANT TO LOUISIANA LAW, THAT ASSET STILL HAS TO GO THROUGH PROBATE.

For example, assume you are a widow or widower, and you have two (2) children, Bob and Betty.  Your bank is Chase Bank, and you have a $100,000 in your bank account balance.  When you are at your local Chase branch, you talk to your banker and name Bob the 100% POD designee on your death.  However, your will provides that Bob and Betty share 50/50 in your estate.  Here is the potential problem.  At your  death, Chase bank pays out $100,000 as you specified, but Betty is allowed 50% of that bank account balance under your will.  In other words, Betty has the right to sue Bill for her share in a probate proceeding.

Unless your POD designations mirror your overall estate plan (or if you don’t have an estate plan, then the laws of intestacy, that is, death without a will), you may be creating a litigation nightmare for your heirs.  Read this blog article I wrote on the subject here: What Is a POD Account? A litigation time bomb.

But it is not necessarily all bad news.  A POD designee can be a person, charity, business, or trust, and here are some reasons why this may be a good idea.

Naming a payee on death (POD) beneficiary for your accounts can make the inheritance process much simpler for your heirs and family. That’s because your named beneficiary will automatically get the assets in the account. Although it technically would not bypass probate, if the persons who are designated on your POD are the same persons (with the same percentages) that would inherit under your last will and testament or through intestacy, then there is little risk of litigation or other controversy.  In other words, your POD designations should mirror your estate plan, not conflict with it.

You can also typically name as many POD designees as you like. You can use these to specify the percentage of assets that each designated beneficiary should get.

Note that with POD registration, the named beneficiaries have no access to or control over a person’s assets when the person’s alive, so you retain total control over your assets until you pass away.

Just make sure that your POD designations do not conflict with your last will and testament, and you should be ok.  You should nevertheless speak with an estate planning attorney about this, especially if you have a large bank account balance that you are planning to leave to heirs via a POD designation.

BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.

If you liked this article, “What Is a TOD Beneficiary?” read also these additional articles: Can My Gun Collection Be Part of Estate Plan? and How Do I Pick a Life Insurance Beneficiary? and How Do Estate Plans and Trusts Work? and What Should I Know About Buying Funeral Services?

Reference: Investopedia (May 19, 2022) “Who Can Be a Transfer on Death (TOD) Beneficiary?”

If you’re married, unless there are very unusual circumstances, your spouse should be the beneficiary, especially if you live in a community property state like Louisiana.

A community property state is a state where any asset acquired during marriage is considered to be community property, which means it’s equally owned by each spouse. Any income that either spouse makes during the marriage is community income.

However, there are exceptions that permit spouses to own assets separately from each other. Gifts, inheritances and assets acquired before the marriage are all considered separate property.

There are only nine community property states, plus three states that allow residents to opt into community property law. The other 38 states plus Washington D.C. follow a common law property system where ownership of marital assets is more straightforward: whoever acquired the property owns it outright. However, a couple can choose to become joint owners, such as through a joint bank account.

If you’re now wondering which states are community property states, they are Louisiana, Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington and Wisconsin.

If you’re single, you might have a tougher time naming a life insurance beneficiary.

If you have minor children, ask a lawyer about naming a trust as beneficiary.  This is because a minor use of the proeperty will devolve to the other parent.  This can be often be problematic if you are not married, or the other parent of your child is estranged from you.  If a trust is the beneficiary of the policy, you can name a trusted family member as the trustee of the trust until you child reaches the appropriate age for distribution of assets from the trust.  The distribution can be made in “ages and stages”, over time, if you like.

If you have a disabled family member, consider a special needs trust (“SNT”).  A special needs trust (SNT) will allow the funds in the trust to be used for the disabled family member without kicking the disabled family member off of needs based programs.

If you don’t have a trust, you can name an adult family member or any other trusted person. However, remember that if you name an adult family member, once the proceeds are paid, those funds legally belong to that individual. Therefore, you better really trust that person and make certain that he or she understands that the funds need to be used for the intended minor child/children.

Finally, when making your decision, do so as if this account would be paid out tomorrow.

You should always consult with an estate planning attorney.

BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.

If you liked this article, “How Do I Pick a Life Insurance Beneficiary?” read also these additional articles: How Do Estate Plans and Trusts Work? and What Should I Know About Buying Funeral Services? and Medicaid’s “Snapshot” Date and Its Crucial Impact on a Couple’s Financial Picture and Claiming Social Security Benefits at Age 70

Reference: Cision (May 20, 2022) “How to Choose a Life Insurance Beneficiary”

The beneficiary designation will always supersede language of your will. Neglecting to know which assets have beneficiary designations and failing to update the designations can undo even the best estate plan.

The beneficiary designation for your life insurance, annuity, or retirement account custodian provides an opportunity to tell the company who is to receive life insurance proceeds, annuity, or retirement savings upon your death, explains a recent article titled “This Important Estate Planning Step is Often Missed” from Coeur d’Alene/Post Falls Press. If these are not coordinated with a last will and testament, the results are problematic at best, and worse, financially, and emotionally devastating.

This epic fail comes in many different forms, but the most common is when a life insurance policy has never been updated and an ex-spouse receives the policy proceeds. The rules differ between retirement accounts and life insurance and can be impacted by various state and federal laws (and the divorce decree, if the life insurance policy was included). However, for the most part, the ex will receive the proceeds and litigation will not succeed.  This is because the beneficiary designation is a contact between you and the insurance company or retirement custodian.  They are required by contract to pay to the person named in the beneficiary designation, and this is why such proceeds to not go through probate.

Occassionally, a person will die without having named a beneficary.  This most often occurs when a person named a spouse as beneficiary, but that spouse died and a contingent beneficiary was not named.  In such a case, the proceeds must by law be paid to the estate, and in this case the funds do go through probate.  This can be problematic for two reasons. First, life insurance and retirement accounts are “asset protected” under federal and/or state law.  However, if the funds go through probate, the creditors of the estate will have a chance to get the assets.

Example.  Bill has a life insurance policy.  He named his wife as beneficiary of the policy and did not name a contingent beneficiary.  His wife died last year and Bill has not updated the beneficiary designation. Bill dies in a car accident in which he was at fault.  Bill’s estate is liable to the “injured person” for damages and a personal injury attorney is hired by the “injured person” to extract as much wealth from Bill’s estate as possible.  Normally, if Bill had named a beneficiary, the life insurance proceeds would be go directly to the beneficiary and would be protected.  However, because Bill’s beneficiary designation lapsed (he did not have a beneficiary), the policy proceeds are payable to Bill’s estate, and the “injured person” can make a claim on the policy proceeds that are funneled through the estate.

Another common beneficiary designation mistake is when a person has created a living trust or revocable trust to prevent assets from going through probate when they die. Probate can take many months to complete and there are several strategies used to take assets out of the probate estate.

When the living trust is established and assets are transferred into the trust, those assets do not pass through probate.

However, if a person (or married couple) established a living trust and fails to list both primary and secondary beneficiaries for life insurance and/or retirement accounts, it is entirely possible that the assets will go through probate.  In such a case, the person should name the trust as the beneficiary of the policy.  This can protect the assets even if paid out to the trust depending on the asset protection features of the trust (for example, if the trust is an irrevocable trust).  If done incorrectly, payouts of life insurance policies can have a significant impact on Medicaid long-term care planning as well.

Take the time to make an inventory of all assets and accounts. Determine which ones have a beneficiary designation and find out who is named as the beneficiary. If your retirement accounts and life insurance policies were established decades ago, this is especially important.

Failing to coordinate beneficiary designations with your estate plan could undermine your wishes. Review these items with your estate planning attorney to avoid these and many other potential pitfalls.

BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.

If you liked this article, “Why Is Beneficiary Designation Important?” read also these additional articles: Does Diabetes Increase Chances of Suffering from Dementia? and Protecting Your House from Medicaid Estate Recovery and How Do I Plan for Taxes after Death? and How to Find a Great Estate Planning Attorney

Reference: Coeur d’Alene/Post Falls Press (May 23, 2022) “This Important Estate Planning Step is Often Missed”