A few years ago, the book “The Gentle Art of Swedish Death Cleaning” was widely praised for simplifying the process of managing personal possessions after a person’s death. Having a properly prepared estate plan can achieve the same result. However, only if you are meticulous about the details. A recent article, “Leaving money to those you choose: Here’s what can override your wishes even if you have a will,” from CNN explains how your will can be undone.
People need to be mindful of the importance of naming beneficiaries on important financial accounts, such as 401(k) plans, IRAs, life insurance policies, annuities and possibly even brokerage and bank accounts.
Anyone named as a beneficiary on these accounts is the person who will receive the assets, no matter what is in your will or any other estate planning documents.
Having a beneficiary designation is a good thing for several reasons. Assets are transferred faster to beneficiaries because any asset with a beneficiary designation is not part of your probate estate. There is no court involvement with the distribution, and in most cases, a death certificate and proof of identification are enough to have the proceeds distributed to the beneficiary.
If assets are subject to probate, they are not distributed to heirs until the court has approved the will and all debts and expenses have been paid. Probate can be a costly and time-consuming process, with delays that can take months or, in some cases, years.
Administering an estate is difficult enough. However, if a financial asset is given to a beneficiary who isn’t part of your life when you die, the family is left with little recourse. Imagine an ex-spouse you don’t want to leave money to, but you never took off the account. If a person named as a beneficiary has died, the process becomes even more complicated.
In the case of a pre-deceased beneficiary, the person next in line will depend upon what you specified when filing out the form. If you have a secondary beneficiary, that person will inherit the asset upon your death. If you haven’t named any other beneficiaries, the default beneficiary in most instances will be your estate. If you die without a valid will, your assets will be distributed by the intestacy laws of the state where you were living when you died.
The directions in a trust also override any instructions in a will. They are often used to control how assets are distributed because you can dictate the terms and dates of how money is managed. If you have an adult child with a substance abuse problem or a child who is disabled and will need lifelong support, a trust may be a better option.
However you make these decisions, you and your estate planning attorney need to be mindful of the tax implications under the SECURE Act and other changes to laws governing inheritance. Take the time to review who you named as your beneficiary way back when, and ensure that those people are still the ones you want to receive your money. If you don’t have a will or haven’t updated a will in three to five years, now is the time to sit down with an estate planning attorney and create a road map for your future.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. Schedule a quick and easy consultation with our estate planning attorney, Sedric E. Collins, Esq., or call 323-900-5450.
