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There are numerous ways to leave your estate to your named beneficiaries. A Will is the most common, though if you have considerable assets, retirement plans, stocks, brokerage accounts, bank accounts, real estate or other property, you may not want your estate to be probated since it is time consuming and all public.
Instead, many individuals use alternate methods of leaving their assets to avoid probate. These include trusts, payable on death accounts (POD), Transfer on Death registrations (TOD) for stocks and bonds, US savings bonds, life insurance and retirement plans. You can name whomever you want as your beneficiary along with contingent or secondary beneficiaries.
Problems arise, however, when the beneficiaries named in these various trusts, accounts or plans conflict with your overall estate planning for distributing your estate, especially if you remarry, have children from more than one marriage, or wish to leave your estate to charities, trusts, and various other individuals.
This can all become extremely confusing since many of these accounts could have been established years earlier when your financial and marital status may have been very different. Also, some named beneficiaries may have passed away with no contingent beneficiary named or the named beneficiary may be a former spouse, disabled person, lover, estranged friend, or charity that is no longer in business.
Do All Accounts or Plans Need to have Beneficiaries?
You do not have to name anyone to receive the funds from a bank account, retirement plan or other account. Most people, however, do name individuals, trusts or organizations. If you do not, the funds could become just part of your estate that may have to be probated.
Naming Different Beneficiaries for Different Accounts
There is nothing wrong with spreading the wealth among friends, family, trusts, or organizations but this could result in inequities and resentment among family members. For example, your Will may state that your assets will be distributed equally among your children, but you may have named only one child to receive your life insurance benefits, POD or TOD account, or to a special needs child who is unable to manage the funds.
Retirement Accounts
Make sure you have a retirement plan, consider naming your spouse since he or she can roll-over the account to his or her own plan and thus defer withdrawals until age 70 1/2 and then take minimum distributions. Problems arise, however, if your spouse is incapable of managing the account, if your children are experiencing financial problems and need funds, or if you are in a second marriage but do not want to ignore your first family.
A trust can solve some of these problems if you name a person or organization to manage the trust should your spouse become incapacitated. Also, in this instance, the surviving spouse can refuse any part of the assets through a disclaimer and allow the funds to stay with the trust and benefit future beneficiaries.
If a child has special needs, name a special needs trust as the beneficiary but have an elder law or trusts and estates attorney set this up for you as it can be very complicated, especially if your child is receiving public benefits.
Another concern regards Thrift Savings Plans (TSP) and if you have an inherited 401(k), IRA or TSP account. There are spousal beneficiary and non-spousal TSP beneficiary participant accounts and the rules differ for each. Death benefits have to be paid directly to the beneficiaries and have to pay taxes for the year in which the funds were received. Your surviving spouse can avoid this by rolling the TSP into an IRA upon your death and then having your children set up an inherited IRA and thus stretch the tax payments over their own life expectancies.
Review Your Accounts and Beneficiaries
Have a trusts and estates attorney handle your estate to maximize your distributions without the need for probate. Before you do this, you should make a list of all your assets and accounts where beneficiaries have been named and review them every year.
Consider what your wishes are for the eventual distribution of your estate. As noted herein, some beneficiaries may have died or are people or organizations with whom you no longer have a relationship. Further, if you do want your assets to be distributed equally, you may have to re-designate the beneficiaries of your POD and TOD and other accounts to reflect your true wishes.
Consult Elder Law Attorney Patricia Bloom-McDonald
Patricia Bloom-McDonald is a Massachusetts Elder Law and Estate Planning lawyer who can assist you in all facets of your estate planning and who can advise you regarding how best to maximize the distribution of your estate. Call her today for a consultation to ensure that your estate plan is consistent with your overall wishes.