Homework!
Coordinating Assets with your Estate Plan
My kids are now back to school full time after a year and a half of trying to do school at home. Which now means they have homework! I thought it would be an appropriate time to talk about our own adult “homework.” Today I want to focus on coordinating your assets with your estate plan. This homework is a critical part of preparing a solid estate plan. Below is a summary of what you need to do to make sure your loved ones don’t get stuck having to file a probate petition with the court when you are gone.
Real property
If you are single and own real property, or if you are married and hold any real property in your individual name only, your estate will automatically be subject to probate without additional estate planning. If you own your home in joint tenancy with your spouse or other individual(s), you might think that you are safe from probate. That is true - for now. When a joint tenant passes away, the surviving joint tenants automatically inherit the deceased joint tenant’s share of the property. But what happens when the last surviving joint tenant passes away? At that point in time, the survivor would be the sole owner of the real property, which automatically triggers probate.
Also, what happens when joint tenants pass away within 30 days of one another? Once again, a probate proceeding will likely become necessary. To make things potentially more complicated, if you own property in more than one state, probate may need to be opened in each state where the property is located.
To ensure that your real property does not trigger probate, you should consider preparing either a revocable living trust or a transfer-on-death deed (also known as beneficiary deed) which will transfer title to the real property to your named beneficiary(ies) at the time of your death.
Beneficiary accounts
Retirement accounts such as 401(k)s, IRAs, life insurance policies, managed investment accounts, and annuities typically require the owner/account holder to name a beneficiary when the account is first created. If you are married, the primary beneficiary is typically your spouse. People often identify their children as secondary beneficiaries (if married) or primary beneficiaries (if single). However, a minor cannot inherit directly. Depending on the state, a minor is defined as either 18 (Washington) or 21 (Colorado). A trust would therefore need to be created by the estate to preserve the inheritance until the beneficiary reaches the appropriate age. This may create unnecessary cost and complications that can be avoided through estate planning. Take a look at the following questions to see if you need to make any adjustments:
When was the last time you checked your beneficiary designations to make sure they are accurate? Have you had additional children or been married or divorced? The first step is to verify what you already have in place.
If you have created a revocable living trust, have you updated your beneficiary designations to incorporate the trust? For married couples, I typically recommend that the spouse be named as the primary beneficiary and the trust be identified as the secondary beneficiary. If you are single I recommend that the trust be identified as your primary beneficiary.
Bank accounts / self-managed money market accounts
There are several ways that people involve others in their day-to-day banking. For example, when a financial power of attorney is created, one can provide that information to the bank and the agent can be connected to the accounts as such. Some of my clients often add their child(ren) to their accounts as a joint owner. The best way to ensure a smooth transition of these assets it to identify a “payable on death” beneficiary to the account.