PEACE OF MIND
Do you know which of your accounts have beneficiary designations, sometimes called transfer-on-death (TOD) or payable-on-death (POD) designations? Have you updated them recently? Are you aware of what can go wrong if there are issues with your beneficiary designation forms? If you answered “no” to any of these questions, it may be time to review your beneficiary, TOD, and POD designations and confirm that everything is accurate, complete, and current. Accounts and property with beneficiary, TOD, or POD designations take precedence over your Will or living trust, so keeping forms updated is crucial.
Beneficiary, TOD and POD designations are made using legal forms that specify who will receive the asset (e.g., accounts, property, death benefits, etc.) after the original owner dies. Such designations allow you to pass assets directly to your beneficiaries and avoid probate.
Avoiding probate can reduce estate costs and result in faster distribution to beneficiaries. Common asset types where beneficiary designations come into play include: * Retirement accounts: 401(k)s, individual retirement accounts and other retirement plans.
* Investment accounts: Brokerage accounts, stocks, bonds and mutual funds.
* Bank accounts: Checking accounts, savings accounts and certificates of deposit.
* Life insurance policies: All types of life insurance policies, including whole, term and group.
* Real estate: Transferon- death deeds and similar alternatives (offered in more than half of states).
For most Americans, their home and financial accounts are the primary source of their wealth, making them central in an estate plan — and making it all the more important that beneficiary designations for these assets reflect your current wishes.
According to financial advisors, beneficiary form errors are among the most common — and the costliest — estate planning mistakes that people make. These errors fall into a few main buckets: * Failure to name a beneficiary. Many people simply forget to complete beneficiary designation forms. This situation is especially common for inherited accounts.
* Outdated information. Major life events such as marriage, divorce, the birth of a child or the death of a beneficiary necessitate updating designations.
* Inaccurate or missing information. Mistakes in spelling, addresses, or other identifying information or failure to provide complete information can cause delays, confusion or even disputes when processing beneficiary designations.
* Naming a minor as beneficiary. Technically, minors can be named as beneficiaries, but they cannot legally receive or manage money and property above a certain value.
* Not naming contingent beneficiaries. If the primary beneficiary dies before the account holder, or cannot be located and no contingent (backup) beneficiary has been named, it will be treated as if no beneficiary had been named.
In addition to the unintended distribution of assets, an invalid, missing or outdated beneficiary designation can result in the assets requiring probate administration. Also, most things that go through probate may be subject to claims from creditors.
Schedule an estate plan review A recent survey found that nearly one-fourth of Americans have not revised their estate plan since creating it. Many also have not updated it within the past 10 to 15 years.
The recommended timeline for reviewing beneficiary designations is the same as for the rest of your estate plan: at least every few years or after any significant life event.
During the review process, you and your attorney can dig into details, such as: Are these beneficiaries still the people you want to receive your accounts? Are the beneficiaries still living? Are they capable of managing the inheritance?
Is there more than one beneficiary named and, if so, how hard is it to divide the account or property, and what is the potential for conflict between/among the beneficiaries?
Have you informed the beneficiaries that they are named? Do they know how to claim their inheritance?
When reviewing beneficiary designations, get current confirmation directly from the financial institutions to verify whom they have on record. Do not just rely on the forms you originally filled out to ensure your designations are properly processed.
This article is provided as a service from the Law Office of Lasca A. Arnold, PLLC.
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