ElderLaw News — The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President., William S. Fralin, Esq., President.

Beneficiary Form Cautions

Beware who you designate as a beneficiary for your bank, brokerage or retirement account.

Even if you have a will, these designations override the will. There are advantages to this separate designation process – just be sure you know what you are doing. When you open one of these financial accounts, you have the option of designating a beneficiary, someone who may or may not be included in your will. The advantage is that upon your death, the assets pass directly to these beneficiaries, bypassing the probate process. This is a nice feature, but just make sure those prior designations continue to reflect your current wishes. If you intended, at the time of making a will, to have your entire estate pass equally to your children, a prior designation of a sibling on a retirement account, for example, will still be in effect unless it is changed. The funds in the retirement account, in that situation, would go to the sibling, not your children. Martin Shankman, an estate-planning attorney in Paramus, NJ has seen such situations occur so many times that he calls the beneficiary designation on financial instruments "bank-teller estate destruction."

To avoid these horror stories, financial planners and attorneys recommend that you review all of your beneficiary designations at regular intervals, or at a minimum, when there is a life-changing event such as a birth, marriage, divorce or death. Retirement accounts are particularly complex. If the beneficiary is a spouse, who is the first to die, the funds in that account on the holder’s death will flow to the estate, triggering a large tax bill. For retirement accounts, it is recommended to name contingent beneficiaries, individuals who will become the beneficiaries if the primary beneficiary is no longer living. Taxes, in this way, can be reduced. Changing jobs also qualifies as a significant live event. If you have a 401(k) retirement account with one employer, the beneficiary designations do not automatically roll over to the new employer’s plan or to an IRA.

Who, then, should you name as a beneficiary? Just about anyone you choose, but not minors, people with disabilities, people who lack the ability to manage money or have credit problems, or people with marital problems. These categories are much better dealt with through trusts, which protect the individuals from their own mismanagement, loss of property to creditors or in-laws, undesirable tax consequences, and potential loss of public benefits. Sometimes it is wise to name a class of people, like "all my grandchildren who survive me", rather than naming specific individuals. Then, as more grandchildren are born, the designations do not continually have to be updated. However, step-grandchildren are an exception to this rule. They do need to designated by name. (All information from Carolyn T. Geer, "Beware the Beneficiary Form," Wall Street Journal, July 5, 2011)

As one can see, these issues are very complicated. It is wise to seek advice from experts like the attorneys at The Estate Planning & Elder Law Firm who are very informed about all these issues.


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The Estate Planning & Elder Law Firm, P.C.

The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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