Making Sure Your Assets Go to the Right People
byJudith Sterling and Michelle Tucker
Here is the story of a very happy young Hawaii couple. The wife received sad news that her ex-husband had died in a car accident. However, her sadness lifted when she received the good news that she was the beneficiary on a $200,000 life insurance policy on his life. Since it had not been a very amiable divorce, this was a big surprise to her. However, she quickly adjusted to the windfall and she and her new husband used the proceeds to travel and open a small business in Hawaii. Her ex-husband had been intending to change the beneficiary on his life insurance but he just didn’t get around to it.
More and more of us recognize the need for careful, methodical estate planning. We prepare our wills and trusts. We labor over who should be guardians for our children and who should be trustees and executors. We decide how and when our children or other loved ones should get what we leave behind. However, all too often people who thought they had it all planned fall into a hidden trap: improper beneficiary designations.
Beneficiary designations govern many of our most valuable assets, including life insurance, retirement plans, bank accounts, mutual funds, brokerage accounts, and sometimes even automobiles. Retirement assets alone account for $10.9 trillion, according to statistics from the Investment Company Institute and the Federal Reserve Board. Beneficiary designations direct those assets notwithstanding contrary provisions in a will or trust.
Old Designation
Often we fill out beneficiary designations when we are not thinking about our overall estate plan. A great example is the beneficiary designation for our retirement plan assets. We start a new job and the human resources department gives us a stack of papers to read and another one to sign. We sign that we received the policy manual. We sign what our tax withholdings should be. We sign forms for health, life, dental, and disability insurance. We sign a form directing what should be withheld for retirement and how it should be invested. Finally, we sign a form that indicates to whom retirement plan assets should go upon our death. By this time, we are exhausted from filling out forms and we may not give this as much thought as necessary. This designation stays in effect until completion of a new form.
Beneficiary designations usually are not affected by a change in life circumstances. If you started your job right after college and named your college boyfriend or girlfriend, he or she remains your beneficiary even if you are now married and have children. This might be fine if you married the boyfriend or girlfriend. However, if you ended that relationship and married someone else, your spouse could be in for a rude awakening at your death when your old flame gets all your assets.
No Designation
If you never got around to filling out the appropriate forms, or if the person you designated, like a parent, died before you and there were no backup or contingent beneficiaries designated, the assets would go to your estate. This would bring the assets back under the control of your will. However, this creates two additional problems. First, the assets would be subject to a probate proceeding. This is a public proceeding that can be time consuming and expensive. Second, this causes an acceleration of the income taxation of retirement plan assets and does not allow the surviving spouse to do a “rollover” of the assets.
Comprehensive Estate Plan
Analysis of beneficiary designations is an important part of a comprehensive estate plan. Careful coordination of beneficiary designations with a revocable trust can ensure that your assets go to whom you intend. Further, such coordination allows for the deferral of income taxation until long after your death. A qualified estate planning attorney can help you prepare a comprehensive estate plan.
Attorneys Judith Sterling and Michelle Tucker are both CPAs
and licensed attorneys. They are the first two attorneys in Hawaii to be certified
by the American Bar Association (ABA) accredited Estate Law Specialist Board,
Inc., as Estate Planning Law Specialists, and are so certified by the Supreme
Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only
to lawyers in good standing who have successfully completed a specialty program
accredited by the ABA.
Judith Sterling and Michelle Tucker are partners in the Honolulu Law Firm of Sterling & Tucker, www.sterlingandtucker.com/ For a free copy of “The Trouble with Joint Tenancy” call 531-5391.
Legal Disclaimer
This information has been provided for informational purposes only. It does
not constitute legal advice. The receipt of this information does not establish
an attorney-client privilege. Proper legal advice can only be given upon consideration
of all the relevant facts and laws. Therefore you should not act upon any
of the information contained herein without seeking appropriate legal counsel.
Attorneys Judith Sterling and Michelle Tucker are both CPAs and licensed attorneys. They are the first two attorneys in Hawaii to be certified by the American Bar Association (ABA) accredited Estate Law Specialist Board, Inc., as Estate Planning Law Specialists, and are so certified by the Supreme Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only to lawyers in good standing who have successfully completed a specialty program accredited by the ABA.
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