Checking Beneficiary Designations

I’m sitting here on my birthday and am reminded of advice I give my clients.

This advice is so important you should mark it on your calendar.  On the day after your birthday, write an entry on your calendar to check your beneficiary designations, payable on death beneficiaries, and beneficiary deeds.

There has been more than one ex-spouse or otherwise disowned child that is happily surprised when they get a life insurance check they didn’t expect.  They only get the check because the owner of the life insurance, retirement account, annuity, etc. never changed the beneficiary on the account. 

It is very important that you keep up with, and check on, your beneficiary designations.  Paperwork can get lost resulting in the changes you wanted not getting made.

It is also important that you keep a list of accounts and beneficiaries in your estate planning folder or notebook.  Otherwise your spouse and children may be forced to wait for account statements to arrive to know what you had, where you had it, and then have to deal with the company to find out who you wanted it to go to.

The point of all of this is to say check your beneficiary designations regularly and keep a list of them for your family later

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The 7 P’s of Estate Planning #2 – People

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Estate Planning Definition Redux

The part that people get right is that estate planning is about distributing your property to others.  That definition misses many important things a plan also does.

Estate planning also includes

• Nominating guardians for minor children
• Naming an executor
• Making healthcare choices now instead of making family guess later
• Naming somebody to manage your financial, legal, and healthcare affairs if you can’t
• Planning for mental incapacity
• Tax planning
• Taking care of children with special needs
• Taking care of children with addictions to alcohol, drugs, or anything else
• Protecting children from their creditors
• Protecting children from their spouses

Estate planning is as much about protecting you and your family during your lifetime as it is about anything else.

It is essential that you have a durable power of attorney and a healthcare power of attorney in addition to a Will or Trust.  If you don’t then your lifetime protection is limited.

So, let’s define estate planning as the process of creating instructions on handling affairs and assets in case of mental disability, legal incapacity, or when you pass.

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Best Time to Estate Plan

We all feel like tomorrow will always come.  You always have a date to procrastinate to.  And, while that makes you feel good today, it also creates tremendous stress because you KNOW in your heart that you are not making a good choice.

The best time to plan is now.  But why?

If you lose capacity to make decisions, you can no longer sign some or all the documents in an estate plan.

If you can’t understand and don’t have the capacity to sign a contract, you can’t sign a durable power of attorney, healthcare power of attorney, or living will.

If you lose the capacity to understand what you own and who you want to give it to, you can’t sign a last will and testament or trust.

None of us can predict when that moment will come.  Auto accidents, medications, major medical incidents, and accidents around the home can make us unable to make those decisions anymore.  Your life can change, literally, in the blink of an eye.

The best time to plan is now, before anything happens.

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Stop Putting Your Kids on Your Deeds

I’ve coached quite a lot of people on the dangers of putting children on their deeds.  There are better ways for them to get the land or house without putting them on the deed now.

The first problem is capital gains tax.  If you put children on the deed, then you have made a gift of part of the ownership to them.  They are supposed to pay capital gains tax.  But they don’t pay it based on the day of the gift.  They owe it based on the price you paid.

The second problem is that you are exposing your land or house to their creditors, the IRS, and any lawsuit judgment that they may get against them.

The third problem is if you need Medicaid within 5 years of putting them on the deed, it is considered a gift and you may face a Medicaid penalty.

Instead of putting them on the deed, if you need somebody to have control of the property in case of your incapacity, create a durable power of attorney.

If you want them to have the property but are scared that it will have to go through Probate, you have ways to do that.

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How Does Divorce Affect my Estate Plan?

I had a previous planning client come in after her divorce and ask if her plan needed updating.  She had a will and powers of attorney.  My first answer was it depends on if your plan has language about divorce built into it.

And that is the answer, if you plan has contingencies for divorce built in, then you probably don’t need to update it.  If it doesn’t then most of it will need to be updated.

In general, powers of attorney are not affected by divorce unless they have language built in.

In general, trusts aren’t affected by a divorce unless they have language built in.

But, in Arkansas, gifts to an ex left in a Will are nullified by law.  But, if they are named as executor, then unless the Will has divorce language built in, they will be the executor.

Beneficiary designations, beneficiary deeds, pay on death, and transfer on death are not changed by a divorce.  All too often, an ex gets the payout from a life insurance policy because somebody forgot to change the beneficiary.

In general, it is best to have your documents reviewed after a divorce to make sure your ex is completely out of the picture.

By the way, the client that came in had language in both the Will and Powers of Attorney that automatically removed the ex.

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A Living Will is not a Will

Your Will, or Last Will and Testament, expresses your wishes as to

1. The disposition and distribution of your final estate
2. Who should raise your minor children
3. Who should oversee the Probate process

A Living Will, also called an Advance Directive, expresses your healthcare wishes as to your final hours.  The operative language is terminally ill or permanently unconscious with no hope of recovery.  In a Living Will, you make the choices about what treatments you would want or not want if there is no hope of recovery.  In other words, do you want the plug pulled or not.

A Living Will is a very important document to have as often different family members will have different opinions as to what you would want.  With this document in place, the doctors know what you want and don’t have to listen to conflicting stories from family.

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