Tag: beneficiaries

Don’t Forget to Review your Beneficiaries

Talking about your beneficiaries means talking about death, specifically your death. Planning for your death may sound like the worst thing ever but it is really an incredibly thoughtful act on your part and will help to minimize stress for your family and loved ones when you ultimately check out.

Beneficiaries are typically assigned to retirement accounts (401k, IRAs, etc.), life insurance and annuity policies, as well as transfer-on-death (TOD) accounts. Naming beneficiaries on these accounts allow these assets to avoid the probate process after your death. If you don’t name any beneficiaries, these accounts will be passed on to your estate where they will go through probate based on your state laws. Probate is a legal proceeding that determines who will get your stuff. It is a lengthy, complex process that can be pretty expensive.

If you have a will, probate will use that to determine how your assets get divvied up. If you don’t have a will, also known as intestate, the state will do the best they can to determine who gets what. Suffice it to say, naming beneficiaries is the way to go. Getting this done before you pass away will make things simpler, quicker, and cheaper for your heirs during a very stressful time.

Naming beneficiaries can also be a very simple and inexpensive estate plan for most people, especially if you title your real estate property as a TOD asset.

You should name both primary and contingent beneficiaries. The primary beneficiary is first in line to receive your assets. If the primary beneficiary passes away before you, the contingent beneficiary will receive those assets, depending on your selection of per capita or per stirpes (see explanation below). You can have as many primary and contingent beneficiaries as you want.

Now, here is the most overlooked section of the beneficiary page: Choosing per stirpes or per capita.

Per stirpes (derived from the Latin word for roots) means that if a beneficiary dies before you die, the deceased beneficiary’s children inherit your money.

Per capita (Latin for each head) means that if a beneficiary dies before you die, their share of the inheritance goes back to the estate and gets divided among the other living beneficiaries.

Choosing which one of these for your beneficiaries is very important and should be considered carefully. In the most basic instance, you should elect per stirpes on your beneficiary designations to ensure that your heirs’ heirs receive their share.

I mentioned transfer-on-death (TOD) accounts earlier and just wanted to review what they are and when to use them. TOD is used for taxable accounts, and it allows you to assign beneficiaries just as you do with retirement accounts, annuities, and life insurance. This allows your taxable accounts to bypass the probate process, which is quicker, cheaper, and less stressful for your heirs.

Also, there are about 25 states that currently offer a TOD deed for real estate property. This is a huge time and money saver for your heirs because the property automatically passes down to your beneficiaries named on the deed.

Finally, remember to review your beneficiaries at least annually and certainly after any major life events, such as death, divorce, marriage, adoption, etc.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

The Pros and Cons of Living Trusts

This is always a great time of the year to review your financial picture.

One of the items that you might be considering, or have considered before, is whether or not to establish a revocable living trust to hold your assets.

A revocable living trust is a legal document created by you (the grantor) while you are alive and of sound mind and body. Just like a will, a living trust spells out exactly what your desires are with regard to your assets, your dependents, and your heirs. But a won’t go into effect until after you die, whereas a living trust is already in effect.

There is little difference to owning your assets in your name or in your living trust’s name while you are alive and well. The benefits occur after you die or if you become incapable of handling your own affairs.

Here is a list of some of the benefits of having a living trust:

  • Avoids probate – This is probably the biggest reason people have a living trust. The trust bypasses the costly and time-consuming process of probate, which is conducted by the state courts of your residence when you die and has the authority to decide how to divvy up your assets.
  • Provides privacy – a living trust is not made public, so upon your death, your estate will be distributed in private. A will, on the other hand, is public record and so all transactions will be public as well.
  • Maintains control – If you become incapacitated in a way that you can no longer manage your assets, your handpicked successor trustee can manage your affairs without court intervention, and since the trust is revocable, if you dispute your incapacity, you can retain control yourself.

There are disadvantages as well:

  • Cost – A living trust can cost anywhere between $500 – $4,000, depending on the complexity. This is the price that you pay for the money saved by avoiding probate, which can typically run around 4% of your total estate value.
  • Bookkeeping – In order for your living trust to be of use, you have to transfer your assets into it. That means opening new accounts with the trust as owner for your bank and investment accounts. Also, transferring deeds and title for property into the trust name, which can be time consuming.

In summary, if you have a large family and/or a large number of assets, you may want to consider establishing a revocable living trust. It could save you and your family not just a lot of money, but also a ton of undue stress and strain on you and your family during difficult times.

If you have questions or want to know if you should establish a living trust, just shoot me an email.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com