Of all the difficult
discussions about money, perhaps none is as difficult to have as the one about
end-of-life planning. Talking to your
adult children about your eventual death (or to your aging parents about their
eventual death) is likely painful for all parties to the conversation. According to one study, only 46% of adult Americans
have a will; and I suspect even fewer have had an adequate discussion with
their family about their wishes for after they die.
I’m not going to dwell on the
very good reasons that most every adult should have a will. Crafting that document might be an
emotionally trying experience for many.
So let me aim at something simpler: updating your beneficiaries and the
titles to your property.
While a will is typically the
document that spells out the final wishes of an individual for the distribution
of his estate, it is not the only such document or even the most important one
in many cases. Did you know, for
example, that the beneficiaries you have named for your 401(k) account will get
that money after you die, regardless of what your will might stipulate? In
other words, a beneficiary designation trumps the will. This is true for other assets, too, such as
an insurance policy.
This surprises many people,
but there are some huge advantages to this.
Perhaps the biggest is the fact that this allows the 401(k) account to
escape going through the probate process.
That legal process can take a year or longer, preventing timely
distribution of the estate assets to the surviving family or other persons
named in the will as beneficiaries.
Moreover, by falling outside probate, the money is not usually subject
to any probate taxes the state may assess.
If you are put off by the
thought of end-of-life planning, then just take the first baby steps and make
sure you have up to date beneficiary designations for your retirement accounts.
And retirement accounts are
not the only assets you can keep out of probate and still leave for the person
or person you want to have them. In
Virginia where I reside, as well as in many other states, you can also:
·
Make a bank account payable on death to a named
individual(s). The person has no access
or right to the account until all regular owners of the account have died. This might be especially useful for a family
member who will be your executor and responsible for paying off any creditors.
·
Have a transfer-on-death title for a motor vehicle. It entails a small fee to issue a new title,
and the vehicle cannot have a lien on it.
·
Have a transfer-on-death deed for your
home. Again, it requires a modest fee to
issue a new deed.
·
Transfer ownership of securities to a survivor
upon your death. Check with your broker
on how to do this.
·
Insurance policies: don’t make your estate the beneficiary
of your life insurance policy. That ties
the money up in probate. Make it payable
instead to the people who will have to cover your funeral expenses (just a
suggestion).
So for a typical boomer like
myself, his assets are largely bank accounts, retirement accounts, vehicles, and
a home; and he can keep all of them out of the probate process (in Virginia and
many other states), saving hassle and money for those left behind.
Just updating a will after a
major life event (e.g. a divorce) is not enough. I’ve seen the very sad results of someone
dying without having updated titles to property and beneficiaries, leaving a
current spouse without a home or retirement funds while an ex-spouse got it all.
A few simple steps for those
who don’t want to think about their own mortality, but so important. Now get to it.
Until next time,
Roger
“It is better to go to a house of mourning than
to go to a house of feasting, for death is the destiny of everyone; the living
should take this to heart.” Ecclesiastes 7:2 NIV*
*Scripture
quotations taken from the Holy Bible, New International Version® NIV® Copyright
© 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission. All rights
reserved worldwide.
