Avoid Probate and Misdirection of Estate Assets via Beneficiary Planning
Assigning and reviewing beneficiary designations on your investment accounts is a critical part of your overall financial plan. Neglecting beneficiary designations on your accounts could result in assets entering your estate and becoming subject to the time and costs that accompany probate. Major life events such as the death of a loved one, marriage, divorce, or a change in your financial status could alter your current estate plan and warrant a review of your beneficiaries. Left unchecked, your assets could pass to previously designated beneficiaries that should no longer be a part of your current estate plan or even potentially enter probate in the case of a predeceased beneficiary.
For retirement plans such as IRA’s and 401(k)s, and for life insurance and annuities, beneficiaries can easily be assigned, reviewed and changed if necessary. If you would like to review your current beneficiary designations, please contact your advisor and WESCAP can provide you with the necessary forms to update your accounts if needed. Contact your insurance agent for the owner and beneficiary status of any insurance products owned.
Estate planning for taxable accounts is an often-overlooked area that can be arranged so that your assets avoid probate. The best practice for titling taxable assets in most situations is to place them in a revocable living trust. This will ensure your assets avoid probate, receive a full step-up in cost basis (for community property states) and are distributed in the manner of your choosing.
In lieu of a living trust, there are other ways to ensure you avoid probate on taxable assets. For married couples with community property, converting any individual accounts to joint accounts with rights of survivorship (JTWROS) will assure that your assets pass directly to the surviving spouse. Transfer on Death (TOD) provisions can often be added to these accounts as well, as discussed in the following paragraph. Titling your assets as JTWROS can also ensure they are treated as community property and receive a full step-up in cost basis. Brokerage firms may be reluctant to calculate step-ups for a surviving spouses’ individual accounts even if they are technically community property and entitled to a cost basis step-up.
For single clients or spouses with separate property, individual accounts and joint accounts can be updated with “Transfer on Death” (TOD) provisions. TOD contracts will allow you to assign beneficiaries to your taxable accounts and have your assets pass directly to your beneficiaries and avoid probate. TOD contracts are also available for most bank accounts (sometimes called “Payable on Death” or POD contracts); contacting a representative at your local branch and setting up a TOD contract will offer further protection from probate.
WESCAP Group can help with checking and assigning beneficiaries on your investment accounts to help achieve your estate plan goals. A thorough review of your overall estate plan with an attorney specializing in estates may be warranted. This holds true for clients with trusts or looking to set up trusts. WESCAP does not provide legal advice, but will work with you and a qualified estate tax attorney to obtain the desired legal, tax and estate outcomes. If you are in need of an estate attorney, your WESCAP Group advisor can provide you with several attorney referrals. To discuss any of this further or for specific questions regarding your current situation, please do not hesitate to reach out to your WESCAP Advisor.