Many couples procrastinate when thinking of beginning the estate planning process, but even for those who plan ahead, many believe once they sign their documents, they’re all set. But that’s not all it takes to create a successful estate plan; there are several additional steps necessary to achieve the wishes stated in the plan. According to an article in Trust Advisor, “These Hidden Estate Planning Mistakes Can Have Horrible Consequences,” it’s not unusual for people to neglect the next steps, which leads to a world of trouble.
For example, a couple might be in their second marriage with no children in common. However, the wife has two children from her first marriage. She and her current husband had been together for 10 years, when she’s diagnosed with cancer.
When they went to see an attorney, they agreed that her assets would be divided one-third each to the husband and her two children. But most of her assets were in her company 401(k), and the beneficiary designation for the 401(k) only named the husband. No one changed the 401(k) beneficiary designation to reflect the wife’s wishes. So when she died, the husband couldn’t have one-third distributed directly to each intended beneficiary. Her employer was legally required to distribute the account according to the most recent beneficiary designation they had, which said everything went to the husband.
In our example, the husband was a decent man: he rolled the 401(k) into his own IRA, withdrew the two-thirds for the kids, paid the tax and gave each of his second wife’s children their share. If they had properly updated the beneficiary form to add the children as direct beneficiaries of the 401(k), the tax cost would have been much less significant. It’s not an uncommon estate planning mistake, but it could’ve been even worse. Imagine the wife hadn’t updated her beneficiary designation since her re-marriage; her ex-husband could’ve been in line to receive the 401(k)!
Once you create your estate plan, it’s important to note that these account titles and beneficiary designations supersede everything and anything that’s mentioned in your plan. If assets aren’t aligned with the plan, if no one verifies the correct alignment with financial institutions and no one tracks the changes that happen in assets over time, it can mean some time-consuming and expensive maneuvering for your family.
If your non-retirement accounts list only one spouse as the owner (but not both), the account titles need to be changed to reflect their trust as the owner. If the account owner passes away before this is done, the accounts must go through probate. A joint account would go directly to the other account holder without issues, but would need to go through probate if no other name was on the account. It’s usually easier to align accounts with your plan and put them in the name of your trust.
At Family Estate Planning Law Group, we know that this is the make-or-break factor in estate planning. That’s why we work with all our clients to align their current assets with their plans, including updating beneficiaries on all retirement accounts, life insurance policies, annuities, ownership on bank accounts, home deeds, etc. We then work with clients’ financial institutions to verify assets were correctly aligned and any powers of attorney are accepted and on file. But even aligning and verifying assets isn’t enough.
We know that life brings changes for us all, but did you know those changes necessitate updating your estate plan? A new job brings new employee benefits and a new 401(k). You’ll need to ensure your plan accounts for the new 401(k) and that your beneficiary designations align with the plan. What about a new child or grandchild? You’ll probably want to add them to your plan. Moving? What about the house you’re selling and/or buying?
To make sure your estate plan addresses the assets you actually own at the time of your death, you’ll need to track the changes in assets and regularly review the plan to ensure all assets are aligned. That why we at Family Estate Planning Law Group work with our clients on an ongoing basis; we’ll need to regularly review your assets, family situation and the law to make sure the estate plan takes care of your family the way you intend.
For more information on the importance of asset alignment, verification and tracking, explore our website and contact us to schedule your consultation today!
Reference: Trust Advisor (March 9, 2017) “These Hidden Estate Planning Mistakes Can Have Horrible Consequences”