Important Beneficiary Designation Considerations

Although you may have a formal estate plan established with a trust or will — make sure beneficiary designations on all accounts are consistent with your goals. 

Accounts having beneficiary designations will control who receives the assets.  Common assets with beneficiary designations are:

• Annuities
• Individual Retirement Accounts (IRA)
• Life Insurance
• Qualified Retirement Plans (401K, 403b, 457, SEP, SIMPLE, Pension, ESOP)
• Employee Benefit Plans (Group Term Insurance, Stock Option, Stock Purchase, Non Qualified Retirement Plans)
• Transfer on Death (TOD) Accounts

Additional items to consider:

• Update designations for life events such as birth, death, marriage and divorce.
• If you make changes to your will or trust ensure beneficiary designations are up to date.
• Name contingent beneficiaries
• Use caution when naming a trust as beneficiary, get a legal opinion from a estate planning professional
• Consider naming a charitable organization as a beneficiary

Beneficiary designations are a powerful tool allowing for efficient transfer of assets to heirs.  Consult with an estate planning specialist to ensure beneficiary designations have been recognized and completed throughout all assets.

Contact a qualified estate planning financial advisor within our free and secure directory — to discuss your exact needs.  SEARCH HERE.

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The Basics of Will and Trusts:

You know you need a will, but do you need a trust?  And what does either of them have to do with a financial plan?  Does your financial advisor have the right experience to most effectively help you?

To answer those questions, let’s back up a little.  If you die without a legal will or trust, then the state will decide what happens to your property–and to your minor children, in the event their other parent is not able to care for them. No one wants to think their wishes won’t be honored after they die, and that’s where wills and trusts come into play.

A will, as you probably know, is a legal document stating your wishes in regard to your property and guardianship of your minor children after you die. A living trust, on the other hand, is a legal arrangement you create yourself while you’re alive; under a living trust, a trustee holds legal title to the beneficiary’s property. You can be both the trustee and the beneficiary while you are alive. Upon your death, the trust passes to a successor trustee you have determined, and he or she is responsible for the disposition of your property according to your wishes.

So what’s the point of putting all your property into a living trust for which you are the trustee and the beneficiary?

Simple:  A living trust keeps your estate out of probate.  When you die with a will in place but without a living trust, the will goes into probate.  In probate, all your property must be inventoried and appraised, debts and taxes must be paid, and only then can the remaining assets be allocated according to your will.  A living trust completely eliminates that costly and time-consuming legal process (unless you have property you haven’t put into your trust, in which case, only that property will go into probate).

Your attorney can help you decide whether you need a revocable or irrevocable living trust, and he or she can also help you with your will.  Once those are established, keep the paperwork in a safe place–and make sure your successor trustee and executor both have access to it.

Disclaimer: AllFinancialAdvisors.com does not give legal advice. 
Always consult your attorney before making any legal decisions.

Search by STATE for Financial Advisors with Estate Planning expertise.  These financial planning professionals will be able to review your personal situation and help you connect with a local attorney (if you do not currently have one).

Written by Jeff Camarda: Camarda Financial Advisors (Jacksonville, FL).

Control Over Estate Taxes 

There can be no doubt that the estate tax is here to stay, and will apply in some form – likely the same exemptions and rates on the books for this year – for 2010, the previously-legislated year of the long-awaited appeal. After that, all bets are off, but my hunch is the tax will become much more oppressive, to feed massive Federal deficits, and because higher taxes have become “fashionable” again.

However things break, there are some basic rules we’d do well to remember:

1) Each of us gets to gift or pass on a limited amount tax-free

2) While each of us gets our own exemption amount, if the first spouse to die does the natural thing and leaves everything to the other spouse, their exemption is completely wasted.

3) Life insurance, which, if owned by you or your spouse, can cause some pretty big numbers to be needlessly pulled into your taxable estate. Another special type of trust, called an “ILIT”, can help solve this problem.

4) The last tax issue involves “stretching” IRA-type accounts, so that heirs pay tax as they pull money out, instead of up front in a big lump sum. Many clients want to have their kids be able to stretch the taxes, but still benefit from the protections of trust planning. For this, so-called “conduit” provisions are needed in the trust document.

* * *

Many of our advisors are members of the Financial Planning Association (FPA) and also the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning).

Using the services of a qualified financial advisor (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably! 

NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

An Inherited IRA is also known as a Stretch IRA

As IRA account owners pass away their assets are typically inherited by designated beneficiary(s) named on the account. The beneficiary(s) have a choice to receive a lump sum distribution, minus ordinary income tax, or establish their own Inherited IRA account, which offers additional tax deferral. If the later option is chosen, the IRS requires annual beneficiary distributions to be taken based upon a uniform life expectancy table. Therefore, younger beneficiaries inherently have an advantage to grow inherited IRA assets due to relatively small-required annual distributions.

Ask a financial advisor to show you a hypothetical illustration for inherited IRA distributions with beneficiaries who vary in age. This may become an opportunity to include loved ones who are younger than you into your estate plan while providing them with a financial foundation.

Many of our advisors are members of the Financial Planning Association (FPA) and also the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning).

Using the services of a qualified financial advisor (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably!

NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

Carefully consider beneficiary designations; they have a significant impact on the distribution of your estate.

Most financial advisors specializing in estate planning, suggest using a will or trust to formally outline the final distribution of assets held within one’s estate.  However, these documents, unless specifically named as the beneficiary, usually do not have any effect on the distribution of many important assets.  Personal assets such as IRAs, annuities, life insurance, retirement plans, employee benefit plans, and transfer on death accounts use beneficiary designations to control which entity receives these assets.  Financial advisors can help you decide on which beneficiary designations are best for you.   These can include people, charitable & educational organizations and religious entities among others. Also, most financial advisors highly recommend naming back-up beneficiaries; commonly called “Contingent Beneficiaries”. If a primary beneficiary dies before you the contingent beneficiary will receive its share of the asset.

Most financial advisors suggest making it a habit to review beneficiary designations regularly and update them as necessary for employment changes, birth, death, marriage and divorce. 

Many of our advisors are members of the Financial Planning Association (FPA) and also the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning).

Using the services of a qualified financial advisor (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably!

NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

Only if the estate can pay the tax bill! 

Financial Planning is essential.  It’s never too late to correct your errors or put an estate plan in place, if you have neglected to do so up to this point. 

Early this week the judge presiding over Michael Jackson’s estate ruled in favor of the co-executors listed in Jackson’s 2002 will. Mr. John Branca, a renowned music attorney and Mr. John McClain, a music executive will now take control of the Jackson estate. Together, with a team of legal advisors, they will orchestrate strategies to assess opportunities embedded within Jackson’s assets including real property, music, video and publishing rights. Overall, the estate value could increase significantly as people want to remember Jackson’s legacy similar to Elvis Presely’s estate.  Could Neverland become the next Graceland?  Should Jackson have had better comprehensive financial planners?  or a single high-quality financial advisor?

Now, the co-executors are facing an estimated $80 million dollar federal estate tax bill due within nine months from the date of death. Unfortunately, most of Jackson’s estimated $236 million estate, as reported by The Associated Press March 2007, assets are relatively illiquid and difficult to value. Until a final valuation and liquidity solutions are in place the executors are expected to request a tax payment extension from the IRS.  In special cases, estate tax can be spread out for a period up to 14 years.

This scenario sets itself up to have assets with significant intrinsic value to be sold off at discount prices. Remember to visit with your favorite investment advisor to ensure your estate has liquidity strategies in place to comfortably settle your estate.

Search: Financial Advisors with a specialization in Estate Planning.

Michael Jackson’s Estate Issues:

Michael Jackson’s estate was not kept up to date.

Indeed, Michael Jackson’s estate plan included a will in conjunction with a family trust. Unfortunately, Jackson’s will is missing vital information, beneficiary designations!

This omission temporarily disqualifies the originally appointed administrator and executors from exercising their powers to privately settle the estate. As a result, the estate now must be exposed to the California probate system; it will determine who gets control over the estate and make many of the proceedings public record.

Currently, Mrs. Katherine Jackson, Michael Jackson’s mother, is the administrator of the estate.  She will likely be succeeded by two of Michael Jackson’s former business colleagues, an attorney and a recording label executive. Michael appointed them as his executors when he established the estate plan in 2002. These individuals are interested to gain immediate control over the estate for business purposes. You can see how the viewpoints of a mother mourning the loss of her son could differ from two businessmen awaiting to take control of her son’s estate.

Estates with multiple administrators and/or executors who have differing agendas can become very difficult to settle, expensive and emotionally taxing.

This is a great example of how important it is to keep an estate plan updated.  Additionally, be very careful and ask lots of questions before deciding who will handle your affairs.  Don’t let your estate become a “Thriller”. 

Who will have control after you are gone?

Find: Financial Advisors with Estate Planning expertise.