I was speaking with a couple from Franklin following one of our education events recently, and they had a question regarding a number of their various investment assets. This family’s primary concern was making the estate settlement process simple for their family so that their loved ones wouldn’t have any delay in accessing their inheritance and the necessary funds to pay for funeral costs. Therefore, the family wanted to put a revocable living trust in place to avoid the probate process altogether.
However, the family had questions about funding the trust, and whether that was even necessary with some of their investments. This couple had IRA accounts with each other named as beneficiaries, checking and savings accounts with each other named as beneficiaries with a transfer-on-death (TOD) designation, 401(k) accounts with each other named as beneficiaries, and investment accounts with each other named as beneficiaries.
I discussed with this family that the assets that they just mentioned are commonly called non-probate assets. In addition, I explained that there is no legal reason why these assets need to be funded and transferred into the name of their revocable living trust. However, it is important that they avoid these three common pitfalls that could prevent their non-probate assets from avoiding probate.
- Make Sure You Have Contingent Beneficiaries Named
I discussed with this couple that these types of non-probate assets pass to their loved ones outside of probate. However, it is a common occurrence that many people fail to update their estate planning documents and fail to update their beneficiary designation forms on these accounts. I told them that it is a common occurrence where a spouse will be named as the beneficiary of an investment account with no contingent beneficiary, and then the surviving spouse fails to update the beneficiary designation after the death of his spouse. Therefore, when the surviving spouse dies, the assets are frozen and have to go through probate because there is no beneficiary designated and the assets either were not transferred into the name of the trust, or could not be transferred to the trust from a tax perspective.
- Stay In Continual Communication With Your Estate Planning Lawyer
As stated above, it is important to stay in touch with your estate planning lawyer. A knowledgeable and experienced estate planning lawyer will constantly be reading and writing on all the trends and new law changes when it comes to estate planning, and will, of course, contact you when these changes occur so your estate plan can be amended to account for these changes. In addition, it is important to work with an estate planning lawyer who is part of a national law firm that focuses their practice exclusively in estate planning, so that you can be sure that the law firm that put your estate legal program in place will stay in communication with you when these changes do occur. In addition, it is especially important to work with a multi-state estate planning law firm that agrees to perform all these legal services for a one-time reasonable flat fee with no additional charges for the amendments that do occur due to life and law changes.
- Consider Naming the Revocable Living Trust as the Beneficiary of Your Investment Accounts
When I was speaking with this couple, I explained to this couple that I usually caution many of my clients when it comes to naming beneficiaries on investment accounts and TOD designations on their bank accounts for the reasons that life changes can result in forgetful mistakes that result in forgetting to update your beneficiary designation forms with your various investment companies. Therefore, I explained to this couple, that we recommend to many of our client to name the revocable living trust as the beneficiary of their investment accounts, IRAs, and 401(k) accounts. This way, our law firm can ensure that the assets pass immediately to the name of the trust, the accounts will never be frozen, and then the customized provisions of the trust will state where the assets will go after both of your deaths.