Beneficiary Designations – Critical Estate Planning Tools
We talk with clients every single day about beneficiary designations. Making sure every single financial account has carefully listed primary and contingent beneficiaries listed is an absolutely critical component in the estate planning conversation. To explain, let’s talk about what they are first.
When we meet with clients, one of the first steps we take is an inventory of all the client’s assets. These can frequently include bank accounts (checking and savings), brokerage or securities accounts, retirement accounts held personally or by financial planners, real estate, and businesses. Once we have a clear view of the client’s financial landscape, we can start to make a personalized plan to address each asset’s path to ultimately be distributed to the client’s heirs upon their death. We always say, you’ve spent your whole life accumulating the assets you have – you need to make sure the assets will be cared for and ultimately pass on to your loved ones without undue conflict or hardship.
What we mean by undue conflict and hardship is always headlined by probate avoidance. No matter how many assets you have and how large your financial footprint, lots of our clients want to avoid as much of probate as possible. The probate process can often last years, is completely public, and gives a venue for individuals to contest what is happening with an estate. There are lots of ways to avoid probate, but one excellent way is just to make sure each of your assets have beneficiary designations listed with the financial institution. Here’s a quick overview of each of the types of assets and what we generally advise on, if our clients are not taking advantage of the benefits of a Trust:
1) Bank Accounts: Whether it’s a checking or savings, money market, or CD, beneficiaries can be added to a bank account. Each bank has different verbiage for beneficiary designation, but many banks refer to it as making an account Payable on Death (POD). When you make your account POD, the account stays in your name throughout your life, but ultimately will pass outside of court to your listed beneficiary or beneficiaries.
2) Brokerage/Securities/Retirement Accounts: This one is very similar – all we have to do is add beneficiaries to the account. Many clients say they added beneficiaries when the account was first opened, but we always advise our clients to just re-examine these designations. Often, life has changed, and the beneficiaries listed when the account was opened are not reflective of the client’s current wishes. These also should be discussed carefully with an accountant because there can sometimes be tax implications that need to be reviewed. The passage of the SECURE Act in 2020 changed the ballgame for retirement accounts – it’s important to review the current law when making these designations.
3) Real Estate: Here’s a curveball – lots of people think you can’t add beneficiaries to real estate. However, other than using a Trust, you can add beneficiaries to a home very easily by using a Transfer on Death Deed. A Transfer on Death Deed or TOD is a Deed that must be prepared by an attorney (like all Deeds) and lays out that upon the death of the owner of a home, the home is automatically transferred to the designated beneficiaries listed in the Deed. This can be an excellent tool to just make sure a family home stays within the family.
If you have questions even after reading this article, don’t worry! Give us a call at Wakefield Law and we can take you through how you should plan for your unique financial and familial landscape. We would love to sit down and chat. 703-771-9740