A senior with a $2.5 million estate, 85% of which is in brokerage accounts, has designated his two children as beneficiaries with per stirpes on all his accounts. His will does the same thing, so he can avoid the probate process. Does this create any issues?
A recent nj.com article asks “Will my estate plan avoid probate?” According to the article, this current plan could have complications.
Even though our senior has his beneficiary designations lined up on his investment accounts, having a will is critical because we all have assets that don’t pass by beneficiary designation. These are usually personal assets like jewelry, household goods or automobiles. These items will pass by the state laws of intestacy, if there’s no will to instruct how they should pass.
A beneficiary designation, like a "payable on death" account, will supersede the terms of a will as far as that specific account. Naming both (or all) children on all your accounts is preferable to naming one on one account and another on another account, because a senior can spend down the accounts at different times and in different amounts. That could result in unintentionally benefiting the beneficiaries unequally.
With this type of issue, it’s wise to speak to an estate planning attorney about whether to designate beneficiaries on financial accounts or life insurance policies, or instead, have the assets payable to the estate or trusts under the will. Depending on the overall estate plan, naming beneficiaries could disrupt and undermine the estate plan strategy that is designed by your attorney. The reason is trusts established in a will may not be able to be funded, and taxes or administration expenses may not be able to be paid as planned.
Banks often encourage people to name beneficiaries on various accounts because of the FDIC insurance limitations but moving some funds to another bank may be a better idea. Another issue with beneficiary designations is that as banks merge, and the accounts change, or as you move your accounts from one bank to another, the beneficiary designations that you once had set may be inadvertently left off.
Therefore, if our senior is relying on beneficiary designations, after any change in his financial institution, whether a branch change, name change, or institution change, he would be smart to reconfirm the beneficiary designations. This is especially true for insurance policies and retirement accounts, which generally pass by beneficiary designation forms and not by a will.
Talk to an estate planning attorney to be certain your current plan still meets your goal for your assets and heirs.
Reference: nj.com (September 24, 2018) “Will my estate plan avoid probate?”