Make Sure Beneficiary Designations Don’t Wreck Your Estate Plan

It’s not uncommon for the intent of an individual’s will and trust to be overridden by beneficiary designations that weren’t chosen carefully.

Some people think that naming a beneficiary should be a simple job, and they try to do it themselves. Others don’t want to bother their attorney with what seems like a straightforward issue. A well-intentioned financial advisor could also complete the change of beneficiary form incorrectly.

Beneficiary designations are often used for life insurance and retirement benefits, but more frequently, they’re also being used for brokerage and bank accounts. People trying to avoid probate may name a “payable on death” beneficiary of an account. However, they don’t know that doing this may undermine their existing estate plan. It’s best to consult with your attorney to make certain that your named beneficiaries are consistent with your estate planning documents.

Wealth Advisor’s “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan” lists seven issues you need to think about, when making your beneficiary designations.

Cash. If your will leaves cash to various people or charities, you need to make certain that sufficient money comes into your estate, so your executor can pay these gifts.

Estate tax liability. If assets do pass outside your estate to a named beneficiary, make certain there will be sufficient money in your estate and trust to pay your estate tax lability. If all your assets pass by beneficiary designation, your executor may not have enough money to pay the estate taxes that may be due at your death.

Protect your tax savings. If you have created trusts for estate tax purposes, make sure that sufficient assets flow into your trusts to maximize the estate tax savings. Designating individuals as beneficiaries instead of your trusts may defeat the purpose of your estate tax planning. If there aren’t enough assets in your trust, the estate tax provisions may not work. As a result, your heirs may eventually end up paying more in taxes.

Accurate records. Be sure the information you have on the change of beneficiary form is accurate. This is particularly important if the beneficiary is a trust—the trust name, trustee information and tax identification number all need to be right.

Spouses as beneficiaries. Many people name their spouse as the primary beneficiary of their life insurance policy, followed by their trust as the secondary beneficiary. However, this may defeat your estate planning, especially if you have children from a first marriage, or if you don’t want your spouse to control the assets. If your trust provides for your surviving spouse on your death, he or she will be taken care of from the trust.

No last minute changes. Some people change their beneficiary designations at the last minute, because they’re nervous about assets flowing into a trust. This could lead to increased estate tax payments and litigation from heirs who were left out.

Qualified accounts. Don’t name a trust as the beneficiary of qualified accounts, like an IRA, without consulting with your attorney. Trusts that receive such qualified money need to contain special provisions for income tax purposes, including proper wording on the beneficiary designation form.

Be sure that your beneficiary designations work with your estate planning, rather than against it.

Reference: Wealth Advisor (October 8, 2019) “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan”


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How Much Does the Average Empty Nester Give Their Adult Children?

It may be a few bucks to help with this week’s groceries, this month’s rent or their cellphone bill.  However, these expenses covered by an empty nest parent for an adult child can add up to a significant financial burden. As many of us know, just because your children have moved out, doesn’t mean you’re off the hook financially.

Whether it’s $100 a month for food or $500 toward your kid’s student loans, about 40% of empty nesters are still financially supporting their children in some way, according to a new report by 55places, an adult community comparison site. According to CNBC in its article “Nearly half of parents still financially support adult children,” the average parent spends roughly $250 each month.

The myth or the optimistic view is that when your children start their careers, you’re home free.  However, many empty nesters have found that’s not the case. These retirees or soon-to-be retirees see that there are a lot of expenses their children incur that will be very difficult, if not impossible, to pay with today’s starting salaries.

Research shows that millennials face financial challenges their parents didn’t as young adults. In addition to carrying most of the $1.5 trillion in student loan debt, their wages are lower than their parents’ earnings when they were in their 20s. A 2017 study of Federal Reserve data by advocacy group Young Invincibles showed that millennials earned an average of $40,581 in 2013—20% less than the inflation-adjusted $50,910 earned by baby boomers in 1989.

Rents also continue to go up, even as housing prices outpace wages. This makes it even more difficult for those just starting out to make it on their own.

Because of this, 24%, of empty nesters are paying cell phone expenses, 19% of parents help with rent and another 18% pay for their kids’ groceries. The study found that roughly 15% help cover their child’s student loan repayments after graduation.

Research also shows that more millennials are living with their parents longer. The average age when parents expected their children to move out was 21. However, about 50% responded that their child was 21 or older, by the time they actually left the family home. The survey interviewed more than 1,800 empty nesters between June and July.

In a study by Merrill Lynch and Age Wave, 58% of early adults (Merrill defines this as those between the ages 18 and 34) said they wouldn’t be able to afford their current lifestyles, without parental support. However, experts caution that supporting grown children can be a huge financial burden, when retirement is near.

Reference: CNBC (September 24, 2019) “Nearly half of parents still financially support adult children”


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Protect Your Pets After You’re Gone

Currently, 67% of American households own at least one pet, and many people now consider long-term planning for them just as important as they would for two-legged family members, says The Atlanta Journal Constitution in the article “When you’re gone, what happens to your pets?”

If you think about it, our animal companions are completely vulnerable. They can’t take care of themselves. If something happens to their owners, it is possible that they could be taken to a shelter and euthanized. If you don’t want to be kept up at night worrying about this, a pet trust should be part of your conversation with an estate planning attorney.

Pets are viewed as valued members of the family in many homes. They provide companionship, and there have been studies showing that their presence helps to reduce stress. They often sleep in the same bed as their owners and go on vacations with their human family.

A 2018 survey found that 79% of millennials who purchased a home, said that they would pass on a home, no matter how perfect, if it did not meet the needs of their pets.

How can you protect your pets?

Understand that pets are considered property and have no legal rights. It’s entirely up to their owners to plan for their care. Some questions to consider:

  • Do pet trust laws vary by state?
  • What happens to any funds left over, when the pet dies?
  • Can you tap 401(k) or other retirement funds to care for a pet?

To begin, look at the life expectancy of each pet and factor the average vet bill, food bill and any additional money in case of an emergency. The ASPCA says that the annual cost to care for a dog is between $737 to $1,404. Caring for a cat averages about $800. Of course, caring for cats or dogs depends upon the age, breed, weight and whether the animal has any medical needs. Some pets can live a very long time, like horses, and certain birds can live more than seventy years.

Next, identify caregivers who will commit to caring for your pets. You should then talk with your estate planning attorney. If you rely on an informal plan, your pet may be out of luck, if something happens to the caregivers, or if they have a change of heart.

A pet trust allows you to leave money to a loved one or friend to care for the pet in a trust that is legally binding. That means the money must be used for the pet’s care. It can be very specific, including how often the pet should go to the vet and what its standard of living should be. The executor or lawyer could go to court to enforce the contract.

Typically, the trustee holds property “in trust” for the benefit of the pet. Payments to a designated caregiver are made on a regular basis. The trust continues for the life of the pet.

Speak with your estate planning attorney about protecting your pet. You’ll feel better knowing that you’ve put a plan into place for your beloved furry friends.

Reference: The Atlanta Journal Constitution (September 24, 2019) “When you’re gone, what happens to your pets?”


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