Who will get your assets at your death? Do you think you know? You may not. While you probably know who is listed in your Will or Trust, most of us have significant value in assets that are not controlled by either a Will or Trust.
Examples of assets not governed by your Will or Trust are:
- Property held in joint tenancy with right of survivorship
- Life insurance
- IRAs, 401(k)s and other retirement plans
Joint tenancy property goes automatically to the surviving joint tenant(s). So, if you own property jointly with your sister, the jointly held property will go to her even if your Will or Trust gives everything to your spouse.
Life insurance goes to whomever is named as the beneficiary of the policy, even if it is owned by someone else. So, if you own the policy and have named your daughter as beneficiary, the death benefit will go to your daughter. Again, as with joint tenancy, this will occur even if you have given somebody else, like your spouse, everything in your Will or Trust.
Perhaps the most overlooked (and important) asset is the retirement plan (IRA, 401(k), etc.). Americans have trillions of dollars in retirement plans. The beneficiary of the retirement plan is whomever you specify in the beneficiary designation for the plan. Like joint tenancy and life insurance, it does not matter if you named someone else in your Will or Trust. So, you could have named your mother in your retirement plan and she would get those assets, even though you’ve named your spouse in your Will or Trust.
A new wrinkle is that, even though you have named a beneficiary, at least one mutual fund company may override that designation for you. Vanguard Group recently announced that it is requiring its customers to name the same beneficiary for all accounts of the same type. So, if you have three IRA accounts with Vanguard, each naming a different beneficiary, you have to come up with one designation. If you do not, Vanguard will do it for you by respecting the most recent beneficiary designation on any of the accounts of that type as the beneficiary designation for all the accounts of that type. Let’s say you have two children and you set up two IRAs with Vanguard, each child as the beneficiary for one of the substantial accounts. Then, your brother runs into some difficulty, so you set up a new small IRA with him as the beneficiary. Under Vanguard’s new rules, your brother would be the beneficiary of all three accounts. Many professionals and Vanguard clients are waiting to find out if Vanguard’s new practice will hold up in court.
As you can see, it is important to verify beneficiary designations periodically to ensure those assets will go where you intend. A qualified estate planning attorney can help you coordinate your beneficiary designations with your entire estate plan to ensure that your assets get distributed how and to whom you intend.
Compliments of the McGee Law Firm, Attorney Brandon McGee
Written By: The American Academy of Estate Planning Attorneys
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