Spring is officially here, and I hope you are all enjoying the warmer weather. Speaking of spring cleaning, if you have not already done so, this is also a good time to review your estate plan, confirm your beneficiary designations are accurate, and for those of you with trusts, to make sure that your trust is properly funded (please see articles below). I offer all new clients a free 30-minute initial consultation. For all of Heather Reynolds’ returning clients, I offer a free 30-minute consultation to review and assess whether your estate plan needs updating.
When to Change Beneficiary Designations
When completing or updating your estate plan, please do not forget to update your beneficiary designations for your retirement plans, 401(k)s, IRAs, life insurance policies, mutual funds, annuities, and 529 college savings plans. For those who do not have revocable living trusts, you should also update your beneficiaries on your bank and brokerage accounts. Sometimes, we forget who we have indicated on such beneficiary designations.
If your beneficiary designations are outdated and you die without updating those designations, your assets could go to the wrong people – a former spouse, for example – no matter what is outlined in your estate plan. In addition, if there is no surviving beneficiary listed on the designation form, such account may have to go through probate. It is also important to name a secondary or contingent beneficiary in the event that your primary beneficiary predeceases you.
It is always a good idea to review your designations every few years, especially when the following events occur:
- Divorce or Remarriage: Update your accounts to ensure that you are not leaving assets to an ex-spouse and that your new spouse is included.
- New Job: When rolling over your old 401(k) to your new employer’s 401(k) plan or to an IRA, make sure that the new account accurately reflects your wishes.
- Your primary beneficiary passed away: If you’ve already named a secondary beneficiary, that person would now become your primary beneficiary. You should name a new secondary beneficiary to ensure that your ongoing designations reflect your current wishes.
- Your financial institution has changed ownership: Be sure to check that the new institution has recorded your documents and beneficiary designations properly.
- New child or grandchild: If the new child or grandchild is under 18, you should consider consulting with an estate planning attorney and creating a trust for the child and naming the trust as a beneficiary.
- One of your beneficiaries becomes disabled: In this event, you should consider meeting with an attorney to create a special needs trust for that person, naming the trust as a beneficiary. Keeping them as a beneficiary could jeopardize the disabled person’s eligibility for governmental disability benefits.
Reference: Roberts, Greg, “On the Money: Don’t Disinherit Your Loved Ones.” Aiken Standard, December 10, 2016.
Make Sure Your Trust is Properly Funded
Once your Trust is executed, you must transfer title to your assets into the name of the Trust. This process is referred to as “funding” the Trust. It is important to remember that at the outset, a Trust is no more than an empty box; it must be “filled” with the assets which you own. Only what is actually owned by the Trust avoids probate. The funding process begins by listing specific assets on the Schedule of Assets (“Schedule A”) to which the Trust refers.
Assets that you will usually want to transfer to your trust include the following:
•Certificates of deposit
•Tangible personal property, such as art, jewelry, furniture, clothing
The way to ensure that the Trust itself actually owns your assets is to methodically change the title of each asset, both now and in the future. In short, the following rules apply:
Change the name of all assets, which you wish to have listed under the Trust. This may include savings accounts, checking accounts, brokerage accounts, mutual funds, etc. Assets totaling more than $150,000 that are left outside the Trust may be subject to probate. In general, title on all Trust assets should be held as: “JOHN DOE, as trustee of The DOE LIVING TRUST.” This is usually done by filling out the institution’s own forms (i.e. a signature card at the bank) to indicate that your Trust owns the account, rather than you as an individual. Never change the ownership of a retirement account, which would trigger income taxes immediately.
Don't Forget About Your Pets
Pets are family members, so it is important to include them in your estate plan in the event that your pet(s) outlives you. However, you cannot simply leave a lump sum of money to your pet after your demise. Pets are considered property under the law so they cannot inherit assets from you. Nevertheless, you can plan ahead to make sure that your pet(s) has a good life after you have passed by including specific provisions in your will or trust. The key factors to consider are (1) who will take care of your pet(s), and (2) ensuring the caretaker has the resources to take good care of him or her.
When including a pet in your estate plan, the first step is to designate someone who is willing to care for your pet(s) and provide them with a good home. In addition, you should name an alternate caretaker in case your first choice is unable or unwilling to adopt your pets when the need arises. The second step is to set aside funds to cover your pet(s)’ future expenses, leaving enough for reasonable comfort and care of your pet. A recent article in the AARP Bulletin stated that the average lifetime expenses for a dog is $10,719. For a cat, the average lifetime expenses is $12,050. These figures do not include additional medical expenses if a pet becomes ill or has an injury or accident.
Another more formal option to provide for pet(s) when an owner dies or becomes incapacitated is to create a separate pet trust. California is one of several states that allows legally enforceable pet trusts. Pet trusts are much like any other type of trust, in how it is created and how it operates. In a pet trust, a pet owner can designate a caretaker for the pet(s) and a trustee who will manage the money for the pet. Moreover, an owner can also specify the type and level of food, shelter, care, exercise, and companionship required for each pet, in minute detail. While a pet trust is more complicated and often more expensive than less formal arrangements, the legal obligation it creates can be more reassuring.
Reference: Bacher, Renee, “How Much Would You Spend to Keep Your Pet Healthy,” AARP Bulletin, March 2017, Vol. 58, No. 2. Note: Lifetime figures are based on a lifespan of 11 years for a medium-sized dog and 15 years for a cat.