By James S. Rizzo, Esq.*
“What’s in a name?”
– William Shakespeare
To answer Shakespeare, “Everything!” Many people may not associate naming beneficiaries on insurance and financial documents as “estate planning” because it usually does not involve a visit with an attorney. However, what is normally the easiest form of estate planning is often neglected entirely or is given inadequate attention.
Ideally you should review all of your assets with an estate planning attorney to ensure everything ends up as you intended and your assets are protected and not tied up in a lengthy probate proceeding after you die. Such a meeting should address your goals, concerns and provide options, such as a Medicaid Irrevocable Trust, to avoid having your hard-earned assets lost to nursing home costs.
Whether you are opening a new bank account, starting a pension fund or meeting with the HR department when starting a new job, the following are five key reasons to make sure you name and set up beneficiaries for your assets
- Recognize that not all assets pass under a Will. All adults should at minimum have a Will in place. However, even with a Will, there are often many assets that pass directly to named beneficiaries which are neither listed nor are distributed under a Will. The most common example is life insurance. If the individuals named as beneficiaries are all living, of legal age and there is no legal impediment to the distribution, the named individuals can generally follow the instructions of the specific company and receive their monetary share directly without court intervention. This presumes, of course, that such accounts are known to the named beneficiaries, which is a topic for a separate article.
- Review your Bank and Pension Accounts. In addition to life insurance, named beneficiaries should be in place for pension assets such as IRAs, 401ks, 403Bs, 457 plans, etc., as well as any CDs, money markets and even checking and savings accounts. Generally, the more diverse and varied your funds, the more you will benefit from an estate attorney and/or a financial advisor reviewing your situation to make sure your asset goals are met.
Generally, if you die with an account held only in your name with no beneficiary listed, those funds are subject to having to go through the court process known as “probate” for the funds to be distributed. The worst-case scenario is having such accounts lost to the State as “unclaimed funds”. Considering New York State is currently holding over $16.5 billion in unclaimed funds (!!), this is a horribly common outcome.
Name Both Primary and Contingent beneficiaries. The reality is that people die. While most people name their spouse or significant other as 100% primary beneficiary, often people neglect to list contingent beneficiaries if that person dies or they neglect to update their beneficiaries upon divorce or other life changes.
Also, 18 is a very young age for a person to inherit assets without any oversight or direction. A popular choice is for people (within their estate documents) to name a specific person to act as Trustee if such a situation occurs and to choose a minimum age of 25 or higher as the age of inheritance. This leads to the next point…
Be careful about naming minor children as beneficiaries. Yet another key reason to visit an estate planning attorney is to make sure proper language is in place to ensure your minor children (under 18) are protected in the event of your sudden death. If you die and minor children are listed as beneficiaries, and neither a trust nor a trustee is named to hold such funds on their behalf, generally an adult family member needs to come forward and seek court approval to be the trustee of those funds until the minors reach the age of consent. This can be costly, time consuming and may lead to litigation if family members are in conflict over who controls the assets on behalf of your minor children.
- A Trust you create can be a beneficiary. While this may sound complicated, generally if you are working with an estate planning attorney, he/she can advise you about the many benefits of choosing this option. In short, if you have minor or disabled children, multiple beneficiaries and/or more complex planning within a trust, you can list a trust as either the owner and/or beneficiary of the account or policy to ensure the assets go to those persons and/or entities named in your trust. A trust should list your successor trustees who will be managing the assets after your death. A trust provides asset protection, can avoid probate and allow for flexibility to amend your trust as time passes and relationships change, usually without having to update all your individual account forms.
While this list only outlines some of the situations that may arise, the benefit of reviewing all your accounts with an estate planning attorney more than pays for itself with the peace of mind and problems that can and will be avoided after your passing.
This article is for informational purposes only and should not be construed as legal advice. James S. Rizzo is an attorney with the law firm of Rheinhardt and Bray, P.C., with offices in Rome, Ilion and serving the Central New York area. He has over 25 years of legal experience and concentrates in Estate Planning matters including Wills, Revocable and Irrevocable Trusts, Powers of Attorney, Health Care Proxies, Asset Protection, Nursing Home/Medicaid planning & Probate issues. He can be reached at (315) 339-0503 or firstname.lastname@example.org for a free, confidential initial consultation. Visit us on the web at: www.cnyelderlaw.com.