Estate Planning No-No’s! - Part Two

INTRO: In Part One of this series, we talked about some of the common mistakes people make in the estate planning arena. Here are more mistakes you should avoid when planning your estate.

4. NOT HAVING CURRENT BENEFICIARY DESIGNATIONS ON FILE FOR LIFE INSURANCE AND RETIREMENT PLANS. People often misunderstand the disposition rules on death that apply to these kinds of assets. Retirement plans (e.g. IRAs, 401Ks) are governed by beneficiary designations – they are distributed to the living beneficiary, if any, who is designated and on file with the financial custodian or insurance company at the time of the participant/owner’s death. And the beneficiary designation trumps whatever your Will or Living Trust might state. Accordingly, it’s imperative that for each such account/policy, you have a current beneficiary designation on file. It’s very wise to also have at least one contingent beneficiary on file – in case the primary designee(s) predeceases you. Frequently, people either don’t have any beneficiary designated; have an out-of-date designation on file; or have only a primary, but not a contingent/secondary designation. This can lead to unintended consequences. I have a client (unnamed and facts changed) who is the beneficiary designated on his recently deceased ex-wife’s $3 Million life insurance policy – his ex-wife never submitted a new beneficiary form to the life insurance company after they divorced 10 years ago. So, he will receive the $3 Million death benefit (regardless of whether she wanted him to receive it).

5. NOMINATING THE WRONG CANDIDATES FOR KEY POSITIONS. It’s hard to over-emphasize the importance of this one. Whether it is a successor trustee you name in your Living Trust, an executor or guardian in your Will or your agent under a Power of Attorney or Advance Health Care Directive, it’s easy to emotionally or irrationally designate someone who is not suitable, or at least not optimal. Many questions should be explored carefully with legal counsel when making these decisions. Does the person you have designated for a given position have the requisite skill set? Will he or she act cooperatively or likely have a conflict with the other family members or loved ones who are involved? Does the designee have the time and inclination to serve in the applicable capacity? If you name two people to serve together (co-trustees, co-agents, co-executors, etc.), will they get along and would it make more sense to name one as primary agent and the other as alternate? Picking the wrong people can wreak havoc with a smooth succession for loved ones.

This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.

ESTATE & TRUST ADMINISTRATION: Need to find an experienced estate & trust administrator in Walnut Creek CA? Contact Robert Silverman at 925-705-4474 for legal advice on a Revocable Living Trust, “Summary” Estate Administration, Trust/Estate Beneficiary Representation and Will & Trust Disputes.