By Bernard A. Krooks, Certified Elder Law Attorney
For many clients, avoiding probate is one of their primary estate planning goals. After all, why would you want your estate to be tangled up in court after you pass away if that can be avoided? Moreover, probate is a matter of public record and just about anyone can gain access to your probate file after you die (assuming somebody was actually interested in your estate).
One of the ways to avoid probate is to create a living trust. By doing so, the assets you contribute to the trust will pass directly to your beneficiaries upon your death without having to go through the probate process. Other benefits of living trusts include, property management during your lifetime and avoiding the need for an additional probate if you have property in another state. Nevertheless, in some instances it might be just as efficient to focus on beneficiary designations. In fact, even when a living trust is involved, beneficiary designations must be reviewed to ensure that your estate planning goals will be met.
Let’s start with what assets can have beneficiary designations and what that really means. By designating a beneficiary on one of your assets, that person will, by operation of law, receive that asset upon your death. Here are a few examples of assets where you can name a designated beneficiary:
Bank accounts. Sometimes, these are called “pay on death” (POD) or “in trust for” (ITF) accounts). In either case, the person you designate will receive the account balance on your passing.
Brokerage accounts, mutual funds, stocks and bonds. These types of accounts can be set up as “transfer on death” or TOD accounts
Retirement accounts — including 401(k) accounts, Individual Retirement Accounts (IRAs), Roth IRAs and other retirement accounts.
Real estate. You can either have someone as your joint tenant with rights of survivorship or perhaps you have a life estate in property and there is a remainder person. In either case, that other person will inherit the property on your death.
While it is relatively easy to designate someone as beneficiary of one or more of your accounts, that can be a good thing and a bad thing; if you are not careful it can wreck your entire estate plan. Any time you change a beneficiary, you must coordinate that change with your overall estate plan to make sure that you do not inadvertently frustrate your intentions. You also need to make sure that you review and update each and every beneficiary form since each company you deal with might interpret the designation differently.
When utilizing beneficiary designations as part of your estate plan, probate avoidance is not the only consideration in many cases. For some, tax considerations (both income and estate taxes) come into play. For others, protection from creditors or eligibility for government benefits is important. In these cases, it might make sense for you to consider a trust as part of your estate plan. Remember, when it comes to trusts, one size does not fit all. There are different types of trusts that might be appropriate for you, depending upon the purpose for which the trust is to be established.
Whatever tools you decide to use to plan your estate, make sure that you don’t just do it and then put it in a drawer and forget about it. We suggest you schedule a time, perhaps once a year, to check your beneficiary designations.
Another thing to watch out for are changes in the size of your estate or composition of your assets. We had a client recently who changed financial advisors and when the accounts got moved from the first advisor to the new one, some of the beneficiary designations did not follow. Or, what if the value of one of your accounts increases while another one goes down in value.
Unfortunately, beneficiary designations are sometimes overlooked as part of the estate planning process. Do yourself (and your lawyer!) a favor; take the time to review your beneficiary designations and keep them up to date as often as you can. This way, the people who inherit your estate will actually be the ones you intended.
Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven years. He is past President of the National Academy of Elder Law Attorneys (NAELA) and past President of the New York Chapter of NAELA. Mr. Krooks has also served as chair of the Elder Law Section of the New York State Bar Association. He has been selected as a “New York Super Lawyer” since 2006. Mr. Krooks may be reached at (914-684-2100) or by visiting the firm’s website at www.elderlawnewyork.com.