While it is certainly advisable to review one’s estate planning documents, from time to time, to make sure they continue to reflect your wishes, it is extremely important to pay special attention to the titling of your assets.
Most married couples own all or most of their assets jointly, with rights of survivorship. Owning assets in this manner is quite convenient because it gives both the husband and wife easy access to accounts. If all assets are owned jointly, probate can be avoided. Often this joint ownership is fine, but if one has estate tax or long-term health care concerns this form of ownership should be reconsidered. It is also quite common for a parent to add a child’s name to his or her checking account or savings account, or to any other asset, thus making the child a joint owner. While this is usually done for convenience purposes, it can have serious, unexpected and undesirable consequences. By making a child a joint owner of your accounts, you are also giving up control during your lifetime. If you need to make changes to the account, your child’s approval will be needed. Since the child legally owns the asset, the asset is at risk if the child has creditors, gets sued, or becomes involved in a divorce action.
In reviewing your assets, it is imperative that you take a very close look at beneficiary designations. Retirement accounts, such as IRAs and 401ks, are usually an important part of one’s asset base. These accounts absolutely must have a beneficiary listed, in order to avoid serious, adverse income tax consequences. Naming your estate or a trust as beneficiary can also be problematic unless handled correctly. While non-retirement accounts do not require a beneficiary to be listed, clients often do so, without really considering the consequences. Naming a beneficiary on bank and investment accounts does avoid probate, circumvents the problems associated with joint ownership, and makes it easier for the beneficiary to collect funds upon death. It is important to keep in mind, however, that beneficiary designations supersede the terms of one’s will or trust, which means that your wishes as set forth in your will/trust may not be honored. If your desire is to treat everyone equally, then you need to make sure your beneficiary designations reflect that. Lastly, it may be important to leave some monies passing into your estate, so that there are funds available to your Executor to pay expenses and taxes.
In summary, one should periodically review one’s estate plan with an experienced attorney, to ensure that your wishes will be effectuated and that adverse consequences will be minimized.
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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.