Despite the best of intentions, not completing the necessary steps, like failing to rename accounts or fund accounts, can derail even the best estate plan.
For many couples, the process of estate planning starts when one spouse learns that they are facing a terminal health crisis. The couple works with an attorney, who drafts a will, power of attorney, healthcare directive and other documents. The couple then signs the documents and thinks everything is done. But their tasks are not done; there are several additional steps necessary to achieve the wishes stated in the will. According to an article in Trust Advisor, “These Hidden Estate Planning Mistakes Can Have Horrible Consequences,” it is not unusual for people to neglect the next steps, which leads to a world of trouble.
For instance, a couple might be in their second marriage with no children in common. However, the wife has two children from her first marriage. She and her current husband had been together for 10 years, when she’s diagnosed with cancer.
When they see an attorney, they agreed that her assets would be divided one-third each to the husband and her two children. But most of her assets were in her company 401(k), and the beneficiary on the 401(k) was the husband. No one changed the 401(k) beneficiary designation to reflect the wife’s wishes. When she died, he tried to get the 401(k) to send one-third to each of her children, but it didn’t work. Her employer was legally required to distribute the account according to the most recent beneficiary designation that they had.
In our example, the husband was a decent sort: he rolled the 401(k) into his own IRA, withdrew the two-thirds for the kids, paid the tax, and gave each of his second wife’s children their share. If they had properly updated the beneficiary form to add the children as direct beneficiaries of the 401(k), the tax cost would have been much less significant. It’s not an uncommon estate planning mistake.
If you have a will and trust, it’s important to note that these account titles and beneficiary designations supersede everything and anything that’s mentioned in your will and trust. If this isn’t set up right, it can mean some time-consuming and expensive maneuvering for your family.
If your accounts list only the husband or wife as the owner, the account titles need to be changed to reflect their trust as the owner. If the wife passes away before this is done, the accounts must go through probate.
Ask your estate planning attorney to help you create a checklist of steps necessary to complete the estate plan. That list should include updating beneficiaries on all retirement accounts, life insurance policies, annuities, ownership on bank accounts, home deed, if appropriate, etc. Review these every now and then, as they supersede any instructions in a will. Don’t do half the job.
Reference: Trust Advisor (March 9, 2017) “These Hidden Estate Planning Mistakes Can Have Horrible Consequences”