Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary?

If you aren’t thorough with your estate planning, you could create conflict, even with the best of intentions, says a recent article from yahoo! Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Your life insurance beneficiary designation supersedes your will, so you’ll need to have your life insurance policy and your will aligned to save heirs from stress, confusion, and possible litigation. You can use both life insurance beneficiaries and wills to bequeath assets to others when you die. However, they can work together or against each other, so meticulous planning is key.

Here’s how they work, and which takes precedence.

A life insurance beneficiary is the person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts.

A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the beneficiaries who you wish to receive your assets.

If you have minor children, a will is also used to assign legal guardians, the people who you wish to raise your children in your absence.

Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.

Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the will don’t influence or have any legal power over what’s in the will.

Your beneficiary designation in the policy is the sole determining factor, with one exception. If the beneficiary passes away before you and there is no contingent beneficiary named, the life insurance proceeds will go to your estate. Your executor will then disburse assets from the estate according to the beneficiaries named in your will.

Do you need a will? While a will has no influence over your life insurance, it’s a critical part of your estate plan. Probate court uses the will to determine who receives assets and name an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan, instead of relying on separate beneficiary designations.

Reference: yahoo! entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”

These Celebrities Didn’t have Wills…But You Should

Rapper Coolio died at age 59 after being found unresponsive on the floor at a friend’s house. His real name was Artis Leon Ivey Jr., and his former manager, Jared Posey, recently filed a probate case to appraise the value of his estate, according to a recent article “What Coolio, Prince and Picasso didn’t have that you should” from MarketWatch.

The filing names Coolio’s seven adult children, who are reported to wear his ashes in necklaces, as his next of kin and likely beneficiaries of his estate. There are also three other children who are under legal age.

The estimated value of the estate is more than $300,000, including personal property, demand deposit accounts, financial accounts, insurance policies and royalties.

Coolio is far from alone in failing to have a will. A 2021 Gallup poll revealed that fewer than half adults in the U.S. have a will outlining how they want their estate to be handed upon their death. It’s a recipe for disaster for their families.

Dying without a will—known as dying intestate—means a local probate court has to decide how to distribute property according to state law, which can take months or even years. What finally occurs may not be what you intended. However, it will be too late.

A will is only one of many tools in the estate planning toolbox. You also need an updated Medical Power of Attorney, a Financial Power of Attorney and to have beneficiary designations on all of your accounts. The beneficiary designations override your will, which is often news to loved ones.

If you have a beneficiary listed on your 401(k) plan, the person listed will receive the assets in the 401(k), regardless of what is in your will. You want to make sure beneficiaries and secondary beneficiaries are all up to date on all of your accounts.

Another important consideration: if a spouse is cut out of a will who would normally receive an inheritance, they have legal standing to challenge the will in court.

For a complete estate plan, you need a Durable Power of Attorney, which states who can make financial decisions on your behalf if you are incapacitated. A Medical Power of Attorney names a person to make medical decisions for you if you are unable to make them yourself, and guardianship designations if you have minor children.

Every few years or after any big life changes, these documents, including beneficiary designations, need to be reviewed and updated with your estate planning attorney.

Other accounts, like brokerage accounts or bank accounts, may have “Pay on Death” or “Transfer on Death” designations which would immediately put the assets into the named person’s hands upon your death.

Another item to consider is a letter of intent, in which you describe for the executor of your estate your final wishes regarding burial or funeral. This document is not legally binding but can be used to share your wishes. The will may not be reviewed until after the funeral, so final directions for funerals, cremations, memorial services, etc., should not be in the will.

You can create a list to be appended to your will listing who will receive certain tangible items, like the family silver or your mother’s pearls. One good thing about having such a list is that it gives you an opportunity to update beneficiaries of your tangible personal property without needing to update your will itself. Be sure the list doesn’t contradict anything in your will and describe the items with great detail. You might also want to include contact information, so your executor can easily locate the person and make sure the items find their desired home.

Better yet—give the items away before you die. You won’t have to worry if they won’t get to the right person, and you’ll get to share the person’s enjoyment when they receive the gifts.

Reference: MarketWatch (Dec. 31, 2022) “What Coolio, Prince and Picasso didn’t have that you should”

Can I Protect My Family after Death?

Estate planning involves a close look at personal and financial goals while you are living and after you have died, as explained in a recent article titled “Professional Advice: Secure your future with estate planning” from Northwest Indiana Business Magazine. Having a comprehensive estate plan ensures that your wishes will be carried out and loved ones protected.

Your last will and testament identifies the people who should receive an inheritance—heirs—who will manage your estate—executor—and who will take care of your minor children—guardian. Without a valid will, the state will rely on its own laws to distribute assets and assign a guardian to minor children. The state laws may not follow your wishes. However, there won’t be anything your family can do if you didn’t prepare a will.

Assets with beneficiary designations can be passed to heirs without going through probate. Certain assets, like life insurance policies and retirement accounts, allow a primary and secondary beneficiary to be named. These assets can be transferred to the intended beneficiaries swiftly and efficiently.

Many people use trusts to pass assets for a variety of reasons. For example, a trust can be created for a family member with special needs, protecting their eligibility to receive government benefits. Depending on the type of trust you create, you might be able to eliminate estate taxes. Certain trusts are also useful in protecting assets from creditors and lawsuits, and ensure that assets are distributed according to your wishes.

Revocable living trusts provide protection in case of incapacity, avoid probate and ancillary probate and may provide asset protection for beneficiaries. If you are the creator of a trust—grantor—you will need to appoint a successor trustee to manage the trust if you are the original trustee and become incapacitated. Upon death, a revocable trust usually becomes irrevocable. Assets placed in the trust avoid probate, the court proceeding used to settle an estate, which can be both time-consuming and costly.

A Power of Attorney allows you to name a person who will handle your financial affairs and protect assets in the event of incapacity. That person—your agent—may pay bills, sell assets and work with an elder law estate planning attorney on Medicaid planning. The POA should be customized to your personal situation. you may give the agent broad or narrow powers.

Everyone should also have a Health Care Proxy, which gives the person named the legal right to make health care decisions on your behalf if you are unable to. You’ll also want to have a HIPAA Release Form (Health Insurance Portability and Accountability Act), so your agent can speak with all health care providers, access medical records and speak with the health insurance company on your behalf.

A Living Will is the document used to convey your wishes regarding end-of-life care if you are unable to do so yourself. It is certainly not pleasant to contemplate. However, it should be thought of as a kindness to your loved ones. Without knowing your wishes, they may be forced to make a decision and will never know if it was what you wanted. A Living Will also avoids conflicts between health care providers and family members and makes a stressful time a little less so.

Having a comprehensive estate plan provides protection for the individual and their family members. It avoids costly and stressful problems arising from the complex events accompanying illness and death. Every three to five years (or when life or financial circumstances warrant), meet with an estate planning attorney to keep your estate plan on track.

Reference: Northwest Indiana Business Magazine (Dec. 27, 2022) “Professional Advice: Secure your future with estate planning”

What If Your Spouse Refuses Estate Planning?

Blended families are quite common in the U.S.

A married couple may have a small child—but one spouse may also have children from a first marriage. The spouse may be concerned about assets and protecting those older children in estate planning.

A spouse on a second or third marriage may insist on a prenup with the other spouse relinquishing any rights. As compensation, many spouses will purchase life insurance with the other spouse as beneficiary. However, what if this plan never comes to fruition?

Nj.com’s recent article entitled “My husband won’t make an estate plan. What can I do?” says that many spouses want to provide for children from a first marriage. However, second marriages can get messy when it comes to estate plans.

Even if the spouse doesn’t help, there are steps a recently married individual can take. One thing is having estate documents prepared by an experienced wills, trusts and estate attorney.

Another is to secure life insurance policies that designate the child or children of the second marriage as beneficiary and naming their mother or father as trustee.

A life insurance policy is a non-probate asset; as such, a beneficiary can receive the proceeds from the policy more quickly than if they had to wait for your estate to be settled through a probate court.

A person in this situation should speak with an experienced estate planning attorney about a will and the life insurance.

A will provides direction for what happens after a person dies and can distribute his or her property to their loved ones, name an executor to handle their affairs, name a guardian for any minor children and specifically state a person’s wishes for family and friends.

It may also be beneficial to look into a trust or other estate planning tools with an attorney to distribute the assets. Exploring these options early in the child’s life in the above example may make a parent feel more prepared for the future, and more secure with the circumstances of the second marriage.

If the spouse tells the other that he or she has an appointment with an estate planning attorney, they just might decide to attend.

Reference: nj.com (March 10, 2022) “My husband won’t make an estate plan. What can I do?”

Senior Second Marriages and Estate Planning

For seniors enjoying the romance and vitality of an unexpected late-in-life engagement, congratulations! Love is a wonderful thing, at any age. However, anyone remarrying for the second, or even third time, needs to address their estate planning as well as financial plans for the future. Pre-wedding planning can make a huge difference later in life, advises a recent article from Seniors Matter titled “Your senior parent is getting remarried—just don’t ignore key areas.”

A careful review of your will, powers of attorney, healthcare proxy, living will and any other advance directives should be made. If you have new dependents, your estate planning attorney will help you figure out how your children from a prior marriage can be protected, while caring for new members of the family. Failing to adjust your estate plan could easily result in disinheriting your own offspring.

Deciding how to address finances is best done before you say, “I do.” If one partner has more assets than the other, or if one has more debts, there will be many issues to resolve. Will the partner with more assets want to help resolve the debts, or should the debts be cleared up before the wedding? How will bills be paid? If both partners own homes, where will the newlyweds live?

Do you need a prenuptial agreement? This document is especially important when there are significant assets owned by one or both partners. One function of a prenup is to prevent one partner from challenging the other person’s will and trusts. There are a number of trusts designed to protect loved ones including the new spouse, among them the Qualified Terminable Interest Property Trust, known as a QTIP. This trust provides support for the new spouse. When the spouse dies, the entire trust is transferred to the persons named in the trust, usually children from a first marriage.

Most estate planning attorneys recommend two separate wills for people who wed later in life. This makes distribution of assets easier. Don’t neglect updating Powers of Attorney and any health care documents.

Before walking down the aisle, make an inventory, if you don’t already have one, of all accounts with designated beneficiaries. This should include life insurance policies, pensions, IRAs, 401(k)s, investment accounts and any other property with a beneficiary designation. Make sure that the accounts reflect your current circumstances.

Sooner or later, one or both spouses may need long-term care. Do either of you have long-term care insurance? If one of you needed to go into a nursing home or have skilled care at home, how would you pay for it? An estate planning attorney can help you create a plan for the future, which is necessary regardless of how healthy you may be right now.

Once you are married, Social Security needs to be updated with your new marital status and any name change. If a parent marries after full retirement age and their new spouse’s benefit is higher than their own, they may be able to increase their benefits to 50% of the new spouse’s benefits. If they were receiving divorced spousal benefits, those will end. The same goes for survivor benefits, if the person marries before age 60. If they’re disabled, they may still receive those benefits after age 60.

Setting up an appointment with an estate planning attorney a few months before a senior wedding is a good idea for all concerned. It provides an opportunity to review important legal and financial matters, while giving both spouses time to focus on the “business” side of love.

Reference: Seniors Matter (April 29, 2022) “Your senior parent is getting remarried—just don’t ignore key areas”

Does Power of Attorney Perform the Same Way in Every State?

A power of attorney is an estate planning legal document signed by a person, referred to as the “principal,” who grants all or part of their decision-making power to another person, who is known as the “agent.” Power of attorney laws vary by state, making it crucial to work with an estate planning attorney who is experienced in the law of the principal’s state of residence. The recent article from limaohio.com, titled “When ‘anything and everything’ does not mean anything and everything,” explains what this means for agents attempting to act on behalf of principals.

When a global or comprehensive power of attorney grants an agent the ability to do everything and anything, it may seem to the layperson they may do whatever they need to do. However, each state has laws defining an agent’s role and responsibilities.

As a matter of state law, a power of attorney does not include everything.

In some states, unless certain powers are explicitly stated, the POA does not include the right to do the following:

  • Create, amend, revoke, or terminate a trust
  • Make a gift
  • Change a beneficiary designation on an account
  • Change a beneficiary designation on a life insurance policy.

If you want your agent to be able to do any of these things, consult with an experienced estate planning attorney, who will know what your state’s law allows.

You’ll also want to keep in mind any gifting empowered by the POA. If you want your agent to gift your property to other people or to the agent, the power to gift is limited to $16,000 of value to any person in one year, unless the POA explicitly states the power to gift may exceed $16,000. An estate planning attorney will know what your state’s limits are and the tax implications of any gifts in excess of $16,000.

These types of limitations are intended to give some common-sense parameters to the POA.

Most people don’t know this, but the power of attorney can be as narrow or as broad as the principal wishes. You may want your brother-in-law to manage the sale of your home but aren’t sure he’ll do a good job with your fine art collection. Your estate planning attorney can create a power of attorney excluding him from taking any role with the art collection and empowering him to handle everything else.

Reference: limaohio.com (April 30, 2022) “When ‘anything and everything’ does not mean anything and everything”

Can a Vacation Home Be Kept in the Family for Generations?

Many family traditions include gatherings at vacation homes. However, leaving these properties to the next generation is not always in the best interest of the family. Some people try to make a simple solution work for a complex problem, leading to more challenges, as explained in the article “Succession planning for the family lakehouse” from NH Business Review.

Joint ownership among siblings can lead to disputes about how the home is used, operated and maintained. Some children want to continue using the house, while others may see it as an income stream for a rental property. There may be siblings who cannot afford to participate in the house’s upkeep and need the cash more than the tradition. When joint ownership is presented as a surprise in a will, the adult children may find themselves fighting about the vacation home, with no parent around to tell them to knock it off.

Making matters more complicated, if the siblings live in different states and the house is in a neighboring state, ownership of the real estate at death may subject the decedent’s estate to estate taxes where the property is located. As a result, the property may need to go through probate in an additional state. Every state has its own tax rules, so the transfer of joint property will have to be analyzed by an estate planning attorney knowledgeable about the laws in each state involved.

A sensible alternative is creating a Limited Liability Corporation, ideally while the original owners—the parents—are still living. The organizational documents include a certificate of organization to file with the Secretary of State and an operating agreement. The LLC will need its own taxpayer identification number, or EIN.

The operating agreement governs the management of the property and addresses the operating expenses and maintenance of the property. It should also address the process for a child to cash in on their ownership to other children. LLC operating agreements often include these items:

  • Responsibilities for operating expenses
  • Process to transfer member units or interests
  • Duties for regular maintenance, budgeting and approval of property improvements
  • Development of a property use schedule
  • Establishing rules for the home’s use

There are some costs associated with creating an LLC, including annual filing requirements. However, these will be small, when compared to the cost of family fights and untangling joint ownership.

An LLC can also offer personal liability protection from lawsuits brought by renters, creditors, or any litigants. If there is an accident resulting from work being done on the property, the owners may be shielded from the liability because they do not personally own the property, the LLC does.

In the case of divorce, bankruptcy filing, or a large judgement being filed against one of the children, the LLC will protect their interest in the property.

The real estate owned by the LLC is not part of the owner’s probate estate. This avoids the need for a second probate in the state where the property is located. Some states have adopted the Uniform Transfer on Death Security Registration Act, and the LLC membership interest can be assigned along to the terms of the beneficiary designation.

Planning for what will happen to a vacation home after death provides peace of mind for all in the family. Speak with an experienced estate planning attorney to ensure that the property and the family’s peace is preserved.

Reference: NH Business Review (March 23, 2022) “Succession planning for the family lakehouse”

Can Grandchildren Receive Inheritances?

Wanting to take care of the youngest and most vulnerable members of our families is a loving gesture from grandparents. However, minor children are not legally allowed to own property.  With the right strategies and tools, your estate plan can include grandchildren, says a recent article titled “Elder Care: How to provide for your youngest heirs” from the Longview News-Journal.

If a beneficiary designation on a will, insurance policy or other account lists the name of a minor child, your estate will take longer to settle. A person will need to be named as a guardian of the estate of the minor child, which takes time. The guardian may not be the child’s parent.

The parent of a minor child may not invest and grow any funds, which in some states are required to be deposited in a federally insured account. Periodic reports must be submitted to the court, and audits will need to be done annually. Guardianship requires extensive reporting and any monies spent must be accounted for.

When the child becomes of legal age, usually 18, the entire amount is then distributed to the child. Few children are mature enough at age 18, even though they think they are, to manage large sums of money. Neither the guardian nor the parent nor the court has any say in what happens to the funds after they are transferred to the child.

There are many other ways to transfer assets to a minor child to provide more control over how the money is managed and how and when it is distributed.

One option is to leave it to the child’s parent. This takes out the issue of court involvement but may has a few drawbacks: the parent has full control of the asset, with no obligation for it to be set aside for the child’s needs. If the parents divorce or have debt, the money is not protected.

Many states have Uniform Transfers to Minors Accounts. In Pennsylvania, it is PUTMA, in New York, UTMA and in California, CUTMA. Gifts placed in these accounts are held in custodianship until the child reaches 18 (or 21, depending on state law) and the custodian has a duty to manage the property prudently. Some states have limits on the amount in the accounts, and if the designated custodian passes away before the child reaches legal age, court proceedings may be necessary to name a new custodian. A creditor could file a petition with the court if there is a debt.

For most people, a trust is the best option for placing funds aside for a minor child. The trust can be established during the grandparent’s lifetime or through a testamentary trust after probate of their will is complete. The trust contains directions as to how the money is to be spent: higher education, summer camp, etc. A trustee is named to manage the trust, which may or may not be a parent. If a parent is named trustee, it is important to ensure that they follow the directions of the trust and do not use the property as if it were their own.

A trust allows the assets to be restricted until a child reaches an age of maturity, setting up distributions for a portion of the account at staggered ages, or maintaining the trust with limited distributions throughout their lives. A trust is better to protect the assets from creditors, more so than any other method.

A trust for a grandchild can be designed to anticipate the possibility of the child becoming disabled, in which case government benefits would be at risk in the event of a lump sum payment.

There are many options for leaving money to a minor, depending upon the family’s circumstances. In all cases, a conversation with an experienced estate planning attorney will help to ensure any type of gift is protected and works with the rest of the estate plan.

Reference: Longview News-Journal (Feb. 25, 2022) “Elder Care: How to provide for your youngest heirs”