Beneficiary Designations

What is a Failed Testamentary Transfer and How Do I Prevent it From Happening?

The goal of any estate plan is to avoid “intestacy” — that is, when all or some of a person’s estate goes to their surviving heirs, and not to beneficiaries who were named in the decedent’s will or trust. After all, that was the point of having a will in the first place, wasn’t it?

However, as reported in Lake Country News’ article “Estate Planning: Failed Testamentary transfers,” things don’t always work out as planned. If the beneficiary is unable to receive the asset, the best possible situation is for the asset to go to an alternative beneficiary. That’s why every will, trust and any asset of any kind with a beneficiary designation should have an alternative or secondary beneficiary.  However, what happens when there’s no such person named?

If the deceased beneficiary was the decedent’s kin or was kin to the surviving spouse, deceased spouse or even an ex-spouse, in California a special statute called the California Anti-Lapse Statute comes into play, unless another intention is expressed in the will. Under this law, a gift to a deceased kindred beneficiary goes to the kindred beneficiary’s descendants.

The share of the asset will be divided into as many shares, as there are living members of the next generation of kin.

Here’s an example: Let’s say a father makes a gift to his beloved daughter Susan. Sadly, Susan dies before her father. She has two daughters, Dawn and Heather. There’s also a son, Phil, who has passed away, with two surviving children (who were Susan’s grandchildren).

The shares of the father’s gift to Susan is divided by a right of representation into three equal shares: one share each for both of Susan’s daughters Dawn and Heather, and one share for her son Phil, because he has two surviving children.

The share for Phil’s two kids is split equally between the two boys.

This division of assets is a statutory response to what can happen when children do not live longer than their parents.

When there is no alternative beneficiary to inherit and the Anti-Lapse statute does not apply, then the gift is subject to a residual clause. This determines how the remainder, or balance, of the assets are distributed after any specific gifts or assets and monetary gifts are made. First in line: any debts or taxes that need to be paid by the estate.

When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate.

Let’s say Bob leaves his entire estate to his friend George. The Anti-Lapse statute does not apply, because Bob’s heir is not a relative. The will has a residuary clause that gives the remainder of the estate to Bob’s own children equally, even though that might not have been Bob’s intention.

While every state has different laws, this is a good example of why it is very important to update your will on a regular basis. It’s also important to have alternative or secondary heirs named as beneficiaries in your will. Life has a way of surprising us. If your will is not up to date, your assets may not go to the people you had intended. We invite you to request an estate planning consultation with one of our experienced attorneys to make sure your assets are distributed as you intend.


Reference: Lake Country News (Jan. 26, 2019) “Estate Planning: Failed Testamentary transfers”

How Can I Goof Up My Estate Plan?

There are several critical errors you can make that will render an estate plan invalid. Many of these can be easily avoided, by examining your plan periodically and keeping it up to date.

Investopedia’s article, “5 Ways to Mess Up Estate Planning” gives us a list of these common issues.

Not Updating Beneficiary Designations. Be certain those to whom you intend to leave your assets are clearly named on the proper forms. Whenever there’s a life change, update your financial, retirement, and insurance accounts and policies, as well as your estate planning documents.

Forgetting Key Legal Documents. Revocable living trusts are the primary vehicle used to keep some assets from probate. However, having only trusts without a will can be a mistake—the will is the document where you designate the guardian of your minor children, if something should happen to you and/or your spouse.

Bad Recordkeeping. Leaving a mess is a headache. Your family won’t like having to spend time and effort finding, organizing and locating your assets. Draft a letter of instruction that tells your executor where everything is located, the names and contact information of your banker, broker, insurance agent, financial planner, attorney etc.. Make a list of the financial websites you use with their login information, so your accounts can be accessed.

Faulty Communication. Telling your heirs about your plans can be made easier with a simple letter of explanation that states your intentions, or even tells them why you changed your mind about something. This could help give them some closure or peace of mind, even though it has no legal authority.

Not Creating a Plan. This last one is one of the most common. There are plenty of stories of extremely wealthy people who lose most, if not all, of their estate to court fees and legal costs, because they didn’t have an estate plan.

These are just a few of the common estate planning errors that happen. For more information on how to be certain your assets will be dispersed according to your wishes, we invite you to talk with our qualified estate planning attorneys by requesting a consultation.


Reference: Investopedia (September 30, 2018) “5 Ways to Mess Up Estate Planning”

Still Wondering Why You Need to Review Your Estate Plan?

One of the most common mistakes in estate planning is thinking of the estate plan, as being completed and never needing to be reviewed. That is similar to taking your car for an oil change and then simply never returning for another oil change. The years go by, your life changes and you need to review your estate plan.

The question posed by the New Hampshire Union Leader in the article “It’s important to periodically review your estate plan” is not if you need to have your estate plan reviewed, but when.

Most people get their original wills and other documents from their estate planning attorney, put them into their safe deposit box or a fire-safe file drawer and forget about them. There are no laws governing when these documents should be reviewed, so whether or when to review the estate is completely up to the individual. That often leads to unintended consequences that can cause the wrong person to inherit, fracture the family and leave heirs with a large tax liability.

A better idea: review your estate plan on a regular basis. For some people with complicated lives and assets, that means once a year. For others, every three or four years works. Some reviews are triggered by changes in life, including:

  • Marriage or divorce
  • Death
  • Large changes in the size of the estate
  • A significant increase in debt
  • The death of an executor, guardian or trustee
  • Birth or adoption of children or grandchildren
  • Change in career, good or bad
  • Retirement
  • Health crisis
  • Changes in tax laws
  • Changes in relationships to beneficiaries and heirs
  • Moving to another state or purchasing property in another state
  • Receiving a sizable inheritance

What should you be thinking about, as you review your estate plan? Here are some suggestions:

Have there been any changes to your relationships with family members?

Are any family members facing challenges or does anyone have special needs?

Are there children from a previous marriage and what do their lives look like?

Are the people you named for various roles—power of attorney, personal representative, guardian and trustees—still the people you want making decisions and acting on your behalf?

Does your estate plan include a durable power of attorney for healthcare, a valid living will, or if you want this, a DNR (Do Not Resuscitate) order?

Has your estate plan addressed the possible need for Medicaid?

Do you know who your beneficiary designations are for your accounts and are your beneficiary designations still correct? Your beneficiaries will receive assets outside of the will and nothing you put in the will can change the distribution of those assets.

Have you aligned your assets with your estate plan? Do certain accounts pass directly to a spouse or an heir? Have you funded any trusts?

Finally, have changes in the tax laws changed your estate plan? Your estate planning attorney should look at your state, as well as federal tax liability.

Just as you can’t plant a garden once and expect it to grow and bloom forever, your estate plan needs to be reviewed, so that it can protect your interests as your life and your family’s life changes over time. Our experienced estate planning attorneys can review your existing estate plan to determine if your goals are still being met.


Reference: New Hampshire Union Leader (Jan. 12, 2019) “It’s important to periodically review your estate plan”

Who Pays What Taxes on an Inherited IRA?

The executor of a person’s estate must take on the important responsibility of ensuring that the deceased person’s last wishes are carried out, concerning the disposition of their property and possessions. There are times when investments and savings are part of that estate.

An individual may have an IRA that designates the beneficiary or her estate as her heir. An inherited IRA is not like other assets. Executors must be aware of what to do when withdrawing the IRA into the estate account, particularly about how will these funds will be taxed.

nj.com’s recent article asks “Who pays taxes on this inherited IRA?” It explains that the distributions from an IRA are treated as ordinary income by the federal tax code.

The will must be probated, and it may stipulate that the money from the IRA is to be given to the deceased’s children.

These distributions to the children are taxed at their marginal tax rates. However, it is important to note that when an estate is an IRA beneficiary, the entire account must be withdrawn within five years.

If the executor moves the IRA directly into inherited IRAs for each of the beneficiary children, the beneficiaries would be responsible for paying the taxes.

If the executor withdraws the IRA assets, then the executor would pay the taxes from the estate assets.

You will need to speak with the custodian of the IRA to find out what is and is not permitted regarding distribution: are they allowed to roll the IRA into a beneficiary IRA, or can they divide the account into separate IRAs for the beneficiaries? The distribution must take place within five years, so keep that in mind when discussing options and goals for the IRA and the heirs. Our estate planning attorneys can help you determine your best tax options for the inherited IRA when settling the estate.


Reference: nj.com (January 7, 2019) “Who pays taxes on this inherited IRA?”

Am I Too Young to Start Thinking About Estate Planning?

Many people believe they’re too young to begin thinking about estate planning. Others say they don’t have significant enough assets to make the process of planning worthwhile.

However, the truth is that everyone needs estate planning. If you have any assets, and you intend to give those assets to a loved one, you need to have a plan.

Forbes’s article, “Reviewing Your Financial And Estate Planning Checklist,” examines some important topics in estate planning.

The first of topic is a durable power of attorney for property, finances and health care. This document allows you to designate a trusted individual to make decisions and take action on your behalf with matters relating to each of the three areas above.

In addition to the importance of having all powers of attorney readily available, in case you become incapable of making decisions, beneficiary designations should also be looked at frequently to update any changes to family situations, like a birth or adoption, death, marriage or divorce.

Another topic to address is a living trust. A trust will give direction regarding where and how the assets are dispersed when you die. A great reason to use a living trust is that the assets in a trust do not pass through probate court, which can be an expensive and time-consuming process.

Another area is digital assets. It’s critical for your heirs to have access to digital files, passwords, and documents. Digital assets can be easy to overlook. Create a list of your digital assets, including social media accounts, online banking accounts and home utilities you manage online. Include all email and communications accounts, shopping accounts, photo and video sharing accounts, video gaming accounts, online storage accounts, and websites and blogs that you manage. This list should be clear and updated for your heirs to access.

If we fail to plan for these somewhat uncomfortable topics, the outcome will be stressful and expensive for our heirs. Our experienced estate planning attorneys can answer any questions you have and assist you with making sure your estate planning goals are met with positive outcomes.


Reference: Forbes (January 4, 2019) “Reviewing Your Financial And Estate Planning Checklist”

How Do I Include Retirement Accounts in Estate Planning?

You probably made beneficiary designations for your retirement accounts, when you opened them. Remember: who you designated can affect your overall estate planning objectives. Because of this, when including your retirement assets in your estate, ask yourself if anything has changed in your life since then that would affect their status as your beneficiaries, as well as how they’d receive the retirement assets.

Investopedia’s recent article, “Include Your Retirement Accounts in Your Estate,” gives us some things to consider in the New Year.

Beneficiary Designations. Review your beneficiary designations after major life changes. If you fail to make these designations, the funds will most likely go into your estate—a horrible outcome from a tax and planning perspective. If your estate is named a beneficiary, your heirs must wait until probate is finished to access your retirement accounts. It is usually better to name an individual or a retirement plan trust as your beneficiary.

Protecting Retirement Funds With a Trust. Another option is to include a retirement plan trust in your estate planning, instead of giving your retirement funds directly to named individuals. This allows you more control over the distribution while protecting your heirs from additional paperwork and taxes. Trust distributions keep a beneficiary from accessing and spending their inheritance all at once. It’s also a good idea if your beneficiaries include minor children who shouldn’t have direct access to the money until they are adults. Be sure to consult with an estate planning attorney, because there are tax and other complexities associated with designating a trust as beneficiary.

Required Minimum Distributions (RMDs). Your retirement plans have rules about when you are required to start taking distributions. For 401(k) accounts, you are required to start taking RMDs at age 70½. However, if you die and leave retirement plans and accounts to your heirs, these rules apply to them instead. A spousal beneficiary can roll over your retirement funds tax-free into their retirement plan and make their own distribution choices. However, other beneficiaries don’t have the same option. Tax treatment and distribution options vary, depending on who is receiving your retirement assets.

Tax Considerations. The biggest worry you need to address when designating retirement accounts as part of your estate plan, is how they’ll be taxed. Consider how to withdraw from these accounts while you’re alive and how to minimize tax consequences after you’ve passed.

Our estate planning attorneys have a strong understanding of retirement accounts and the tax and legal requirements of estate planning. By working with our attorneys, you can be certain your retirement assets are distributed to the proper beneficiaries with the least tax liability.


Reference: Investopedia (August 27, 2018) “Include Your Retirement Accounts in Your Estate”

How Do I Handle an Inherited IRA?

With an inherited IRA, in many cases, the parent is the original beneficiary and the children are the successor beneficiaries. Both the original owner and beneficiaries need to follow some strict rules.

nj.com’s recent article, “Inheriting an inherited IRA? Your payout choices will be limited,” explains that per IRS rules, if you die prior to withdrawing all the funds from an inherited IRA, then the beneficiaries are bound by the same Required Minimum Distribution (RMD) schedule that they’d chosen when they inherited it.

A person will typically choose either his own life expectancy or the life expectancy of the original plan participant, whichever’s longer. The successor beneficiaries must then keep withdrawing what’s left, according to that same schedule.

However, it’s different if you leave your own IRA to your children. In most circumstances, children who inherit an IRA would be able to withdraw the funds over their own life expectancies.

Note: this is the general rule. The IRA rules are quite complex, and there are many exceptions to the general rules. Ask the financial institution where the IRA is held, if they have any rules concerning their IRAs that may change the general rules.

With an inherited IRA, you need to take annual distributions no matter what age you are when you open the account. This doesn’t apply if you’ve simply transferred another IRA to your own IRA.

Again, as a general rule, you must take distributions during your lifetime or within five years after the original account holder passed away.

If you inherit a Traditional IRA, you’ll pay taxes on any distributions you take. Rollover, SEP, and SIMPLE IRAs become Inherited Traditional IRAs. In contrast, with an Inherited Roth IRA, you don’t pay taxes on distributions.

To evaluate the potential effect an inheritance might have on your overall tax situations, talk to our experienced estate planning attorneys.


Reference: nj.com (December 20, 2018) “Inheriting an inherited IRA? Your payout choices will be limited”

Here’s More Insight into Why Estate Planning is Critical

Fox 5 NY says in the article “Why estate planning is important regardless of your age or wealth” that this is a great time to begin talking to your loved ones about estate planning, especially older relatives and parents.

The key to a successful discussion depends upon the right approach.

Try to always make suggestions, rather than demands. One great way to start the conversation with family members is to mention what you’re doing. You might say something like, “I just took care of my own estate planning. Have you done anything? Maybe we should talk about it.” That might get the conversation rolling.

Many people believe that, as they get older, they need a will. However, that’s just one piece of the puzzle: core estate planning includes a will, power of attorney, health care proxy and asset protection.

For most of us, the asset we most want to protect is our home. One of the best ways to do that is through an irrevocable trust. This trust may have tax advantages, could protect your home during a healthcare crisis and protect your home from your children’s creditors.

You also need to find people you trust to help with finances and health care. A power of attorney is a legal document in which you grant a person the authority to handle finances on your behalf.

Similarly, a healthcare proxy is an individual who makes healthcare decisions, if you get sick or are in an accident and can’t make decisions for yourself.

You can use one person to do both or separate individuals for each role. You can opt for a family member or a trusted friend. However, either way, it should probably be a younger person, who won’t be dealing with the same aging issues as you.

You should also note that your will doesn’t cover everything. Another important part of estate planning is making certain that any beneficiaries designated in your retirement plans or life insurance and any additional names on joint bank accounts are current. The beneficiaries you appointed by a designation form will get the money in those accounts, no matter what it says in your will.

If all of this sounds a bit complex, don’t worry because our experienced estate planning and elder law attorneys can help you with all of the forms and all of your questions. Just understand these three things before you visit our elder law firm: your assets, whose names are on the accounts and your wishes.


Reference: Fox 5 NY (December 12, 2018) “Why estate planning is important regardless of your age or wealth”

Estate Planning Review for 2019

Your estate plan has a big impact on your finances and should be considered as important as your investment portfolio, says Wealth Management in the recent article “Eight Simple Estate Planning Review Items for 2019.”

Here are the eight items that need your attention:

Beneficiary designations. When was the last time you checked these? Beneficiary designations are usually looked at when an account is opened, and often that’s the last time people see them. Look at beneficiary designations for tangible assets, like homes, cars or collectibles. Check legal documents, including bank accounts and insurance policies.

Digital asset designations. This is a relatively new area, but very important. Even if you don’t own any cryptocurrency, chances are good you have assets like photos, reward points, websites and more. Each social media platform has a different policy for how accounts are treated on the death of the owner. You’ll need an inventory and may want to use an online service for managing your digital assets after you die.

Trust funding. This is where many estate plans fall apart. Funding trusts often requires changing titles on bank accounts, homes, and other assets into the name of the trust. Major purchases, like a boat or second home, also need to have their titling corrected, so they correspond to trusts.

Documents for adult children. When your children turn 18, they are legally adults and you do not have the legal right to get information or make decisions on their behalf. If you don’t have HIPAA releases, Power of Attorney, and other documents, you may find yourself unable to help in an emergency.

Keep up with life changes. Review your estate plan with an eye to changes in your life: births, deaths, marriages, divorces, big purchases, etc. If you haven’t met with your estate planning attorney or had a phone conversation in a few years, make an appointment now for a review.

Secure photos and memories. How many times have we watched dramatic images of fires, floods, and earthquakes in 2018? Videos, photos, family heirlooms, and artifacts and other irreplaceable items should be stored in some digital format, or in the cloud. If the family includes artists, take photos of paintings or sculptures so at least you have an image of the item should it be destroyed.

Discuss wishes with loved ones. One of the biggest challenges after someone passes is knowing what they wanted to be done with personal possessions. If you have every Beatles album, unopened, what do you want to happen to your collection? Make inventories and then tell your family what you’d like to have happen with your possessions. You can create a “Legacy Letter” and put it down on paper. It’s not legally binding, but it will give your family some direction.

Prepare for incapacity. This is not everyone’s favorite task, but necessary. If you were conscious but not able to speak, what information would your family need? Work with our estate planning attorneys to create the necessary legal documents, including medical directives, and tell your family members where they are located. Some families keep certain documents (like a Do Not Resuscitate or lists of medications) on the refrigerator so that Emergency Responders can gain access to important medical information quickly in an emergency.

Yes, it’s a good-sized list of to-dos’, and you won’t get it all done in January. However, start your estate planning review in January 2019, so you and your loved ones enjoy the protection you need.


Reference: Wealth Management (Dec. 12, 2018) “Eight Simple Estate Planning Review Items for 2019”

Proper Estate Planning Can Prevent Family Fights

The (Washington, PA) Observer-Reporter’s recent article, “Improper estate planning can lead to familial conflict” explains that some of your possessions will pass through probate. If you own property in several states, the process could become more difficult for your loved ones. A way to simplify the process for them is by having an updated will.

Research shows that about 60% of U.S. adults don’t have a will.

However, not all of your possessions pass through a will. 401(k)s, life insurance proceeds, pensions, and annuities pass by beneficiary designation.

For instance, even if your will states that all of your possessions are to be split equally between your two children, this may not be what occurs. If your life insurance lists only Bob as the beneficiary, he’ll walk off with 100% of the death benefit. Your younger son Doug will receive only half of the assets that don’t have a beneficiary designation. Assets that pass by designation are not controlled by the will. That is why Bob gets all the money from the insurance. As you can see, it’s vital that you review your accounts’ beneficiary designations regularly, to make certain they’re up to date. Check on them every few years or when there’s a family divorce, birth, or death. Once you’re gone, changes cannot be made.

In addition, comprehensive estate planning should include two powers of attorney (POA). The first POA is to make health decisions. The second POA is to make financial decisions if you don’t have the capacity to do so. Your POA agent has your authority to make decisions, only when you do not have the capacity and she can only exercise it for your benefit. POAs end at the drafter’s death.

It’s common today for families to have blended elements. Many people were married before and may have had children. Here’s an example of a famous father who made his third wife executor of his estate, giving her control of his business. In this case, his equally famous son was the principal player in the father’s business. The son didn’t understand the implications of his father’s estate plan. When the father died, there was a long and expensive legal battle between the son and the third wife.

Who was it? It was Dale Earnhardt Jr.

Work with our experienced estate planning attorneys to draft a comprehensive estate plan that clearly indicates your goals and wishes. Having a straightforward estate plan will go a long way in preventing fighting amongst your family.


Reference: The (Washington, PA) Observer-Reporter (December 7, 2018) “Improper estate planning can lead to familial conflict”
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