As with many areas of financial planning, there is not a blanket statement I can…
Many equate estate planning with creating a will. So, when you finally get around to writing your will– a task most of us prefer avoiding rather than addressing, you feel satisfied that you took care of everything. Unfortunately, though, you are far from finished with estate planning when you complete your will. Two essential elements of estate planning must also be addressed: (1) the way your assets are titled, and (2) the beneficiaries on file with your insurance policies and retirement accounts. The reason? Title trumps your will and beneficiaries, but beneficiaries also supersede the will.
Cases illustrating beneficiaries superseding the will are painfully numerous in recent Supreme Court decisions favoring the beneficiary, even when both the will and logic indicate the deceased preference was a different party. Most of the cases involved ex-spouses who were mistakenly left as the beneficiary. But, mistake or not, the courts unanimously agree the beneficiary takes all. [Surely there were turnings in some graves when those decisions came down.] The moral here: properly updating your beneficiaries in a timely manner is critical, and just one step of many.
In all fairness, lawyers have addressed this problem by providing directional letters for beneficiaries, titling and tax planning in their estate document packages. However, unless you are a lawyer, the technical language in the letters tends to read as “blah,blahblahblah,blahblah, blah”. Charlie Brown and his friends could not have said it better.
Clarity of title and beneficiary designation are a must but the will is important as well . For example, thinking all assets are passing to your intended heir via titling and beneficiaries, without benefit of a will, is a serious a mistake especially if you have minor children– your guardian choice is a must. Also, a will addresses unexpected assets such as a liability settlement and whether to override the need to post a bond, among other essential elements.
A second example, among many, of estate planning errors is in naming siblings as beneficiaries to take care of your children, assuming that in leaving your retirement assets and life insurance to brothers and sisters, they will use those assets specifically and only for the benefit of your children. However, without documentation many problems arise. Money changes people, divorce can entangle their assets, and income tax complications can occur. To ensure your wishes are carried out, it is wise to use a proper trust or the UTMA, “Uniform Transfer to Minors”, language.
Estate Planning is complex and essential. And while you may still prefer procrastinating to implementing an estate plan, we hope you will be driven to estate plan correctly. A lawyer and a professional comprehensive financial advisor who acts only as a Fiduciary, is Independent, Fee Only, Educated, Experienced, and Credentialed form the best estate planning team approach.