Weblog Creator: Stephen C. Hartnett, J.D., LL.M. (Tax), Director of Training,
American Academy of Property Planning Attorneys, Inc.
That is one other in a sequence of blogs on the fundamentals of property planning.
Maybe the commonest mistake in property planning is a scarcity of coordination. This isn’t the place the consumer, lawyer, or advisor can’t stroll and chew gum on the similar time. This can be a failure to contemplate all of the completely different features of a plan and the way they could (or might not) work collectively.
An ever-increasing share of a person’s wealth is managed by beneficiary designation.
These might take the type of:
- Actual property managed by a beneficiary deed
- Life insurance coverage
- 529 plan
- Brokerage account with beneficiary designation
- Checking account with beneficiary designation
The consumer might have thought they had been being proactive by placing beneficiary designations on lots of their property. Let’s say they’ve executed a beneficiary deed on their home with their daughter, Susan, because the beneficiary. Let’s say their brokerage account designates their son, George. The IRA names their son, Bobby, instantly.
Years later, the consumer decides to get a will and seeks the assistance of an lawyer. The consumer tells the lawyer they need a easy will leaving every little thing to their son, Bobby, as a result of he’s been caring for them for years now. The lawyer may draft a will-based plan leaving all of the consumer’s property to the son. It could be a well-crafted plan and preserve the property in a testamentary belief for the son, possibly offering divorce or creditor safety, if acceptable.
Nevertheless, the one factor Bobby would get can be the IRA. Additional, the IRA going to Bobby wouldn’t have creditor safety underneath federal legislation (although in locations it might need safety on the state stage).
This underscores the significance of shoppers telling their attorneys what they’ve carried out prior to now and consulting with their lawyer earlier than shifting property sooner or later. If the lawyer had drafted and funded the property right into a belief, this is able to have prevented the issue. In fact, the issue may nonetheless exist concerning property not funded into the belief or later acquired within the consumer’s title individually. Nevertheless, if a will had been used as the first planning automobile, the lawyer might not have identified of the beneficiary designations. The need solely controls the gadgets that are within the consumer’s title upon loss of life. Gadgets with a beneficiary designation switch to the beneficiary upon loss of life and will not be a part of the probate property and never managed by the need. Equally, gadgets in joint tenancy move to the surviving joint tenant by operation of legislation and will not be managed by the need.
A well-drafted will or belief is just one facet of property plan. There’s nothing incorrect with utilizing beneficiary designations the place acceptable. However, the designations have to be coordinated with the remainder of the plan.
An upcoming weblog will have a look at one other widespread mistake within the planning course of.