Understanding Primary and Contingent Beneficiaries is essential for Estate Planning

September 3, 2024

Creating an estate plan is the most important way to ensure that your wishes will go into effect after you pass away. During estate planning, you’ll have to designate beneficiaries. Understanding the difference between primary and contingent beneficiaries is essential for estate planning. Knowing this distinction can make your estate plan more comprehensive and effective, giving you peace of mind that your loved ones will be okay when you’re gone.

A primary beneficiary is the person or entity you choose to receive your assets first when you pass away. This could be a spouse, a child, a friend, or even a charity. When you set up a will, trust, or other financial accounts, like life insurance or retirement, you’ll be asked to name one or more primary beneficiaries.

You might name your spouse as the primary beneficiary if you have a life insurance policy. If you pass away, your spouse will receive the payout directly.

Choosing a primary beneficiary ensures that your assets go to the person or organization you want them to benefit. It can also help avoid conflicts among family members and ensure a smooth transfer of assets. You minimize the chances of disputes and legal challenges by clearly designating who should receive your assets.

Life is unpredictable, and there might be situations where your primary beneficiary cannot receive your assets. They might predecease you, be unable to be located, or simply refuse the inheritance. This is where a contingent beneficiary comes into play.

A contingent beneficiary, or secondary beneficiary, is essentially a backup beneficiary. The contingent beneficiary is next in line if the primary beneficiary cannot receive the assets. For instance, if your spouse is the primary beneficiary and they pass away before you, your contingent beneficiary will receive the assets instead.

According to ElderLawAnswers, naming a contingent beneficiary is essential in estate planning. A contingent beneficiary is designated to receive your assets if your primary beneficiary cannot do so.

This additional layer of planning provides security and peace of mind, guaranteeing that your assets are passed on as you intended, regardless of any unexpected events involving your primary beneficiary. Your wishes will remain clear even in unforeseen circumstances, and your estate plan will carry them out.

Yes, you can designate multiple primary and contingent beneficiaries. This is particularly useful if you have a large estate or multiple heirs. For example, you might want to divide your estate equally among your children. In this case, you can name all your children as primary beneficiaries, each receiving a specified percentage of your assets.

When you have multiple primary beneficiaries, your assets are divided according to the percentages you specify. If one of the primary beneficiaries cannot receive their share, their portion can be reallocated to the remaining primary beneficiaries or passed on to the contingent beneficiaries.

You can similarly have multiple contingent beneficiaries. For example, you might name your spouse as the primary beneficiary and your two children as contingent beneficiaries. If your spouse cannot receive the assets, your children would then receive the assets consistent with your instructions.

While beneficiaries are individuals you choose to receive your assets, heirs-at-law are entitled to inherit from you under state law if you don’t have a will. Without an estate plan, state intestacy laws will distribute your assets. This usually goes to your closest relatives, such as your spouse and children. Designating primary and contingent beneficiaries allows you to control who receives your assets rather than leaving it to state law.

Life circumstances change, and so should your estate plan. Major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary may require updates to your beneficiaries. Regularly reviewing and updating your estate plan ensures that it remains aligned with your current wishes and life situation.

Understanding the roles of primary and contingent beneficiaries is essential for robust estate planning. It ensures that your assets are distributed according to your wishes, even in unexpected circumstances.

An experienced estate planning attorney can help you designate beneficiaries, create a comprehensive estate plan and provide peace of mind for you and your loved ones. If you would like to learn more about beneficiaries and their role in estate planning, please visit our previous posts.

Reference: ElderLawAnswers (May 20, 2024) “What Is a Contingent Beneficiary?”

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Ensure your Child’s Future is Protected with Estate Planning

August 26, 2024

Becoming a parent is an exciting journey filled with dreams and plans for the future. Amidst the joy and anticipation, you also need to consider your child’s future security. While no one wants to think of it, the worst could happen to you, and you could become unable to care for your child. Without an estate plan, your assets could go through a lengthy probate process, and the court would decide on guardianship for your children. Ensure your child’s future is protected with estate planning.

Estate planning involves organizing your financial affairs to ensure that your assets are managed and distributed according to your wishes after you pass away. It includes creating a will, assigning power of attorney and considering trusts. According to Experian, planning ahead can avoid potential legal complications and ensure that your loved ones are taken care of. Estate planning can also help minimize taxes and protect your assets from creditors.

Without a will, state laws determine the distribution of your assets and the guardianship of your children. This could mean that your child ends up with a relative you haven’t spoken to in years or foster care. An estate plan allows you to choose guardians and ensure that your child’s future is secure.

A will is the foundation of your estate plan. It should:

Name a guardian for your children.
Name an executor to manage your estate.
Specify who inherits your assets.

Power of attorney allows someone to make financial and health care decisions on your behalf, if you become incapacitated. This includes:

Financial Power of Attorney: Give someone the power to manage your finances and property.
Health Care Power of Attorney: Empower someone you trust to make medical decisions for you.

The best time to start estate planning is now. Waiting until your baby arrives can lead to delays and potential financial hardships. Building an emergency fund, contributing to a health savings account and setting up automatic savings transfers are great first steps. Proactively managing your finances can help reduce stress and ensure a smoother transition into parenthood. Starting early also allows you to make informed decisions and adjust your plan.

When Joyce Marter, a financial therapist and author, was expecting her first daughter, she found herself living paycheck to paycheck with substantial student loans. In an article by the NY Post, she reflects and explains how she realized the immense value of having a solid financial plan before transitioning into parenthood. Marter recalls a conversation with her pregnant supervisor, who advised her that no one is ever truly ready for a baby: “None of us are really ever truly ready — you just take the plunge and figure it out as you go.”

Years later, as Marter prepared for her own child, she understood the importance of proactive financial planning. She began by building an emergency fund, contributing to a health savings account and avoiding unnecessary baby registry items. These steps provided a financial safety net and helped reduce stress during her pregnancy.

Don’t wait until it’s too late. Ensure that your child’s future is protected and your wishes are honored with proper estate planning. If you would like to learn more about planning for minor children, please visit our previous posts.

References: NY Post (Oct. 18, 2023) “Savvy expecting parents need to start financial planning now” and Experian (Oct. 13, 2020) “How to Plan Your Estate as a New Parent – Experian”

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Addressing your Estate Planning during Divorce is Critical

July 31, 2024

When estate planning dovetails with divorce, existing plans need to be redesigned. How much depends on the nature of the divorce, as explained by a recent article from Accounting Today, “Estate planning for divorcing couples.” Spousal rights, beneficiary designations, child custody and property distribution all need to be examined, as well as the distribution of property in the estate plan. Addressing your estate planning during a divorce is critical.

If this is your situation, you’ll need a team of professionals who can work well together. Your estate planning attorney, accountant and divorce attorney will need to be in frequent contact, as so many of these areas overlap. You’ll want to ensure that your separation agreement and estate plan complement each other. Anticipating potential challenges and obstacles in advance is crucial.

Here are a few aspects to consider:

If your estate planning attorney worked with you and the person you are divorcing, they will want to be clear about who they represent for the new estate plan. If it’s an amenable divorce, the estate planning attorney may recommend a respected colleague to help the other spouse.

The same scenario must be considered for the accountant. Did they interface with one spouse more than the other? If a joint return was filed in the past, which spouse would they work with during the divorce and afterward? An accountant’s involvement in an estate plan during the divorce process may be critical to ensuring that there are no discrepancies in the financials.

Beneficiary designations need to be revisited since, in most cases, spouses name each other as beneficiaries. Updating the beneficiary designation will avoid further complications in distributing the assets if something occurs to one of the spouses while the divorce is in process. Beneficiaries only change when the owner of the account actively makes the change. Your soon-to-be-ex may inherit everything if you don’t change the account beneficiary.

Estate planning involves guardianship for minor children, and divorce typically addresses child custody, support and inheritance. If one of the parents dies, who would get custody of the children? How will they be supported? Life insurance may be part of the separation agreement, where the ex-spouse will still be the beneficiary, so funds may be used to support the minor children.

Couples in the process of divorcing may not create new trusts until the divorce proceedings have been finalized. However, suppose trusts were established as part of estate planning before the divorce. In that case, they may be considered marital or separate property, depending on the source of the assets in the trust. This is a conversation to have with your estate planning attorney.

Addressing your estate planning during a divorce is critical. With the guidance of an experienced estate planning attorney, accountant and divorce attorney, it is possible to move through the tumult and begin the next chapter with some peace of mind. If you would like to learn more about planning during or after a divorce, please visit our previous posts.

Reference: Accounting Today (July 5, 2024) “Estate planning for divorcing couples”

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Sometimes, a Professional Trustee is a Good Idea

July 18, 2024

A couple in their 70s are trying to complete their estate plan but can’t determine who should be their trustee or executor. It’s a second marriage for both. They each have an adult child, but neither child can serve. There are no other living relatives, and all their friends are also in their 70s. Sometimes, a professional trustee is a good idea. A professional trustee or company can provide administrative services for the trust without the potential headache with family members.

The couple gets kudos for tackling this complex issue, according to the article “We’re in our 70s and don’t trust our family to handle our estate. What can we do?” from Market Watch. Most people give up at this point and then run into problems in the future, either because of incapacity or because the death of the first spouse leaves the surviving spouse in a difficult situation.

The first place to start is conversing with your estate planning attorney. They will likely know of a professional trustee or company providing “estate administration services.” It may be possible that they offer this service in their own office, too.

If this isn’t satisfactory, speak with a major financial institution, which will likely be insured and subject to state and federal regulations. They may handle your financial and personal information, such as distributing assets, closing down accounts, handling digital assets and filing income and estate tax returns.

Consider the window of time. You’ll want to be sure the person or bank will still be operating in ten to twenty years. You’ll also want to be sure they are a fiduciary. This means they are legally bound to put your interests above their own, which a court can enforce.

The fees will depend upon the size of your assets and the entity you choose. A large bank will usually charge a certain percentage of your assets. Some use a sliding scale, like 5% on the first $100,000 and a lower percentage as the asset level rises. A $1 million estate could cost around $30,000 to administer.

If a professional trustee is the same person who is administering your trusts, there will be additional fees. The assets in the trust will need to be managed, including investing, making distributions and paying taxes. Many professional trustees handle special needs trusts, where parents have left money for disabled adult children, and administer trusts for family members.

Sometimes, a professional trustee is a good idea, even when family members are available. Naming a professional, whether an institution or an individual, can alleviate concerns about family dynamics interfering with your wishes. If you would like to learn more about being an executor, or trustee, please visit our previous posts.

Reference: Market Watch (June 15, 2024) “We’re in our 70s and don’t trust our family to handle our estate. What can we do?”

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Should You Tell Beneficiaries Their Inheritance?

July 16, 2024

Should you tell beneficiaries their inheritance? It is a legitimate question for many families. If you’ve watched Netflix’s The Gentlemen or HBO’s Succession, you know how powerful the inheritance storyline can be. The mystery creates suspense, and the reveal invites drama. However, your estate plan shouldn’t take lessons from these plot lines, says an article from mondaq, “Communicating Your Estate Plan: A Helpful Tool, Not A Fix-All.”

Whether to reveal the details of your estate plan should be preceded by another question: will being upfront with heirs and beneficiaries before you die reduce the likelihood of family fights and litigation, or will it create the conflict you were hoping to avoid?

While it’s best to be able to share your wishes, whether or not to communicate anything about your estate plan is entirely up to you. No one should feel they must share this information. Your estate planning attorney is ethically required to keep your discussions and any details confidential, even after you have passed.

Any person can modify their estate plan at any time, as long as they are competent and living. You can make any changes you want, even if you’ve told your beneficiaries one thing and then decide to do another. This may have negative consequences. However, you are legally allowed to do it.

Communication can take any form and be vague or specific. You could disclose the existence of an estate plan and inform heirs that it was carefully created based on your wishes and the advice of an estate planning attorney and any other tax and wealth advisers.

Sometimes, knowing a plan has been made with professional help can allay concerns from heirs. You might communicate the general framework of the estate plan, letting heirs understand who has been named for roles like Power of Attorney, Health Care Power of Attorney, Successor Trustee and Executor. It may be helpful to explain why you’ve made these decisions to avoid the “Mom would have never wanted this” arguments.

Things don’t always go as planned, however. If explanations are not consistent among heirs, there will be conflict. Even if explanations are consistent, there will be conflict in some families, no matter how clear you are with everyone.

In some cases, having your estate planning attorney convey details of your choosing to family members might be helpful. Learning this information from someone outside the family can be less triggering, particularly when the family respects the attorney as a skilled professional.

Should you tell beneficiaries their inheritance? Unfortunately, there are some families where transparency won’t preclude conflict. In these situations, sharing any details may create battles you may not want to be a part of or subject you to attempts to influence your decisions. This is something that each person has to consider. A frank conversation with your estate planning attorney about handling these issues will help you decide if or how much information to share with your family. If you would like to learn more about inheritance planning, please visit our previous posts.

Reference: mondaq (June 18, 2024) “Communicating Your Estate Plan: A Helpful Tool, Not A Fix-All”

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Estate Planning with Annuities can be Complex

July 15, 2024

Estate planning can seem daunting. If you’re new to it, you have to learn about power of attorneys, trusts and much more. However, this effort can pay off many times over for you and your loved ones. Once you have a handle on the basics, you can start incorporating advanced strategies into your estate planning such as annuities. Nerdwallet makes the case that having good estate planning is important, and annuities are a vital tool to consider. Estate planning with annuities can be complex.

Annuities are insurance contracts that offer a series of payments over time. These contracts can pay out for a set period or the rest of your life. People often use them to manage retirement income.

Annuities have two phases. An accumulation phase is where you contribute money to the fund, and a withdrawal phase is where the contract pays out. Leaving your money in an annuity during the accumulation phase gives it room to grow tax deferred.

Annuities offer income security, tax advantages and legacy planning opportunities. Not only can you fund your retirement, but you can ensure a steady income stream for your beneficiaries. Annuities are a flexible tool to hedge against volatile markets and achieve financial security.

One of the primary reasons to include annuities in your estate plan is to provide for your heirs. According to Charles Schwab, there are three strategies you can consider during the accumulation phase:

Cash out your annuity if you’re at the end of its surrender period, though be aware of potential charges and taxes. This option provides immediate liquidity, which can be useful for other estate planning needs. However, you may suffer fees or tax penalties related to the early withdrawal.

Moving ownership to a non-grantor irrevocable trust will remove your annuity from your estate to benefit your heirs. This strategy can protect the annuity’s value from creditors and reduce estate taxes.

Make periodic withdrawals during the accumulation phase to take advantage of favorable tax treatment. Regular withdrawals can help you manage your income and tax liabilities more effectively and provide funds for other investments or expenses. This approach allows you to access the annuity’s value without triggering large tax penalties.

Once your annuity enters the payment phase, you have different options to support your estate planning goals:

Annual Gifts to Heirs: Make annual gifts using annuity distributions. This will reduce your taxable estate, benefit your loved ones and comply with annual gift restrictions.
Purchase Life Insurance: Use payouts to fund life insurance premiums. By setting up one of these policies, you can provide a tax-free inheritance for your beneficiaries.
Charitable Donations: Donate annuity payments to reduce taxable income and support charitable causes.
Reinvestment: Reinvest annuity payments into other financial instruments to continue growing your estate’s value.

Estate planning with annuities can be complex. However, you don’t have to navigate it alone.

Key Takeaways

Income Security: Annuities provide a steady income stream, ensuring financial stability during retirement and for your beneficiaries.
Tax Advantages: Annuities allow contributions to grow tax-deferred, and strategic payouts minimize taxable income.
Legacy Planning: Transferring annuities to a trust or using them to purchase life insurance protects your estate from taxes and ensures that your heirs benefit.
Flexibility: Options like annual gifts, charitable donations and trust transfers offer diverse ways to include annuities in your estate plan.

Reference: Nerdwallet (Dec. 21, 2022) “Annuities: What They Are and How They Work – NerdWallet” and Charles Schwab (Nov. 17, 2023) “5 Ways to Use Annuities in Your Estate Plan”

If you would like to learn more about annuity planning, please visit our previous posts.

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Creating a Trust to Avoid Probate Nightmares

June 25, 2024

Good estate planning ensures that your loved ones receive what you leave them without unnecessary delay or expense. However, that can go out the window when the procedure freezes your estate for months or years. Creating a trust to avoid probate nightmares can go a long way to help your loved ones once you pass.

Waiting months for probate can worsen the grief of losing a loved one. Look no further than the story of Penelope Ormerod, as told by The Guardian.

When Penelope Ormerod applied for probate on her late aunt’s estate, she expected a smooth process. Instead, she waited for seven months due to severe delays in the probate system. Recent reforms and centralization efforts had made the system more unresponsive and left her waiting. Beneficiaries, like her daughter Jessica, had dreams of funding their education on hold. This is one example of the turmoil that can ensue when your estate doesn’t avoid probate.

Trusts are powerful tools in estate planning that can prevent your family from going through similar probate ordeals. Setting up a trust means transferring your assets smoothly and quickly to your loved ones. While the traditional will process often requires probate, a trust operates outside this framework. In many cases, this saves time and reduces stress for your inheritors.

Trusts offer flexible, tailored methods for asset distribution. You can use a trust to give assets under various conditions or for specific purposes. You can establish trusts to provide your beneficiaries with lump sums or structured payouts. This ensures that beneficiaries like the Ormerod’s can avoid probate instead of waiting to receive their inheritance. Preventing delays in accessing an estate’s assets is particularly important for young families supporting minor children or ensuring that a family does not have to change their living arrangements due to court scrutiny of home ownership.

By avoiding probate, trusts can save your family stress, time and money. Probate fees and legal costs add up; setting up a trust can be a cost-effective way to pass on your assets. Trusts can also reduce tax liabilities and get more of your money to your loved ones.

Consider creating a trust so your family can receive their inheritance when you want them to, and avoid the nightmares of a probate. If you want to get started, contact an estate planning attorney. They’ll guide you through the options and help you ensure that your loved ones get what you leave them.

Key Takeaways:

Avoid Probate Delays: Trusts can bypass the lengthy and stressful probate process. As a result, your beneficiaries will receive assets sooner and without undue stress.

Flexible Distribution Options: Trusts provide various ways to distribute assets. Choose from lump sums, structured payouts and other options that best serve your loved ones.

Cost and Time Efficiency: Trustees can save on legal fees and court costs by avoiding probate through a trust. Trusts may also reduce tax liability for your beneficiaries.

Secure Your Legacy: Setting up a trust with the help of an estate planning attorney helps safeguard your wishes when you’re gone.

If you would like to learn more about probate, and how to avoid it, please visit our previous posts.

References: The Guardian (May 2, 2021) “Grieving relatives despair at months of waiting for probate”

SmartAsset (August 25, 2023) “How Does a Beneficiary Get Money From a Trust?”

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Diverse Family Structures Have Unique Estate Planning Challenges

June 10, 2024

American family law has traditionally focused on the nuclear family. However, Forbes reports that only 18% of American adults now fit this model. There are many new types of families today, such as blended families, single-parent households and LGBTQ+ families. Dated legal definitions of family could be a hurdle in your estate planning. Diverse family structures have unique estate planning challenges. However, it’s a hurdle you can overcome with knowledge and legal guidance.

Most legal protections and rights cater to the assumption that a family is a married couple with blood children. This alone creates obstacles for many families, even those that look traditional. Many heterosexual couples have children but haven’t yet married. This can deprive them of various rights and may exclude partners from inheritance.

Blended families with stepchildren also frequently struggle with inheritance. If the parents fail to lay out the rights of the children, it can go to a lengthy probate process. Likewise, the children of single parents face a uniquely uncertain future should their parents die unexpectedly. Another diverse family type that frequently struggles with family law is LGBTQ+ families. The rights of same-sex couples vary widely by state, which makes estate planning especially important for them.

These diverse families and more can find themselves underserved by laws that don’t have them in mind. However, that doesn’t mean that their wishes must go un-respected. There are many estate planning tools available that can help people clarify and execute their wishes once they’re gone.

Advanced estate planning techniques can give anyone greater control of their estate. Everyone with a significant estate or minor children should have an estate plan. However, diverse families need to use these tools to safeguard their wishes.

Wills: A well-drafted will is Step One. It makes it far easier to ensure that your assets go to your inheritors as you wish.
Trusts: Trusts offer greater control over asset distribution while avoiding will-related pitfalls. Living trusts can be adjusted during one’s lifetime, while irrevocable trusts protect assets but are permanent.
Powers of attorney: Financial and healthcare powers of attorney let a trusted person decide if the primary individual is incapacitated.
Testamentary guardianship: Single-parent, blended families and same-sex couples should appoint guardians for minor children in their wills.
Beneficiary Designations: Designate the beneficiaries for life insurance, retirement and investment accounts. This ensures that the executor of your will transfers assets according to your wishes.

The evolving definition of family challenges conventional estate planning. Unmarried couples, blended families and other non-traditional arrangements often need tailored estate plans. However, untangling estate law on your own isn’t easy.

Diverse family structures have unique estate planning challenges. Schedule a consultation with an estate planning attorney, who will address local laws and your unique family structure, to craft a comprehensive estate plan. If you would like to learn more about planning for blended families, please visit our previous posts.

Reference: Forbes (April 2, 2024) “How Expanding The Legal Definition Of Family Helps Us All”

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Understanding the differences between ABLE Account and Special Needs Trust

June 3, 2024

Planning for the financial future of a loved one with special needs is crucial. Two essential tools in special needs planning are ABLE accounts and Special Needs Trusts (SNTs). Understanding the differences between an ABLE Account and Special Needs Trust will help you make the right choice.

An Achieving a Better Life Experience (ABLE) account is a valuable tool for people with disabilities. As Special Needs Answers reports, they can use it to save up to $18,000 annually starting in 2024. Unlike other accounts, this doesn’t deprive people of means-tested benefits.

ABLE account holders can save up to $100,000 tax-free and spend the funds on disability-related expenses. This covers assistive technology, transportation, education and even leisure activities. Account administration occurs at the state level, and eligibility is set to expand. While anyone disabled before age 26 qualifies now, the threshold will increase to 46 in 2026.

Likewise, individuals can open and manage their ABLE accounts. This provides much more financial independence than a Special Needs Trust (SNT).

A Special Needs Trust (SNT) is a legal document that provisions funds for disabled loved ones. Like the ABLE account, these funds don’t impact eligibility for Medicaid or SSI. An SNT can pay for items that government benefits don’t cover, including therapy, medical care, recreation and travel.

However, there are some limits. Without affecting benefits, SNTs generally can’t be used for essentials, like food and shelter. A Special Needs Trust also can’t cover cash payments or gift cards. Unlike an ABLE account, a trustee manages the SNT. This trustee works with special needs planners to maximize the trust’s value.

One of the main differences between ABLE accounts and Special Needs Trusts is their contribution limits. ABLE accounts are capped at $18,000 annually, with a total savings limit of $100,000. SNTs have no set contribution or savings limits but have tighter controls.

An individual manages their ABLE account. In comparison, a trustee manages an SNT in the name of a disabled individual.

Another critical difference is eligibility of the disabled person. For now, ABLE accounts are only available to people who became disabled before age 26. This is in contrast to SNTs, which have no age restrictions. An SNT is ideal for long-term asset management, while ABLE accounts offer flexibility.

Consult with an elder law attorney to have a full understanding of the differences between an ABLE Account and a Special Needs Trust. Choosing between the two depends on your family’s goals and needs. If you’re looking for a quick, easy, flexible way to save for a loved one’s disability-related expenses, an ABLE account might be ideal. However, a Special Needs Trust is better for long-term planning with no savings limits.

Key Takeaways:

ABLE Account: Offers flexibility and direct control for disabled individuals, with a $100,000 savings limit.
Special Needs Trust: Offers greater flexibility and long-term security but requires a trustee for oversight.
Planning is a Must: An ABLE Account or SNT may better fit your situation. Either way, you should begin planning sooner rather than later to protect your loved one.
Plan Ahead: Work with an estate planning attorney to decide which tool is best for your family.

If you would like to learn more about special needs planning, please visit our previous posts.

References: Special Needs Answers (Nov. 13, 2023) “ABLE Accounts in 2024: Save Up to $18,000 Annually”

Special Needs Answers (February 12, 2019) “What Can a Special Needs Trust Pay For?”

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Updating Beneficiaries after Gray Divorce

May 30, 2024

Navigating the complexities of estate planning after a mid- to late-life divorce, or “gray divorce,” requires meticulous attention to detail and proactive measures, according to Kiplinger’s article, Don’t Forget to Update Beneficiaries After a Gray Divorce. Updating beneficiaries after a gray divorce is critical to estate planning. This article explores essential considerations for those undergoing a gray divorce, emphasizing the importance of reevaluating estate plans to reflect current intentions and relationships.

While family law attorneys primarily focus on asset division during divorce proceedings, it’s imperative to consider the fate of these assets post-divorce, particularly concerning beneficiaries. Updating beneficiaries on investment accounts, retirement funds and life insurance policies is paramount. Failure to do so could result in unintended consequences, potentially leaving assets to a former spouse.

Many states have statutes that automatically revoke a former spouse as a beneficiary post-divorce. However, these laws vary, and some exceptions exist, notably under the Employee Retirement Income Security Act (ERISA) plans. Understanding the nuances of state laws and ERISA regulations is vital to ensure compliance and avoid costly mistakes.

In some divorces, waivers might be used in decrees to address survivorship benefits related to retirement plans. The effectiveness of these waivers relies on adherence to plan documents and detailed planning. Consulting with a knowledgeable estate planning attorney and incorporating specific language in property settlement agreements can mitigate risks and ensure comprehensive protection of assets.

Key Takeaways:

Proactive Approach: Do not wait until after your divorce is finalized to update your beneficiaries. Proactively review and revise beneficiary designations on all relevant accounts.
Understanding State Laws: Familiarize yourself with your state’s automatic revocation laws and how they affect beneficiary designations. Ensure that these laws align with your post-divorce intentions.
Consulting with Professionals: Consult with an experienced estate planning attorney to navigate the complexities of beneficiary updates and ensure compliance with state laws and ERISA regulations.
Detailed Planning: Use specific language in property settlement agreements to address survivorship benefits associated with retirement plans and other assets. Attention to detail is essential to avoid potential conflicts and ensure that your wishes are upheld.

In conclusion, updating beneficiaries after a gray divorce is critical to estate planning. By taking proactive measures, understanding relevant laws and seeking professional guidance, you can protect your assets and secure the financial future of your loved ones. Ready to embark on your post-divorce estate planning journey? Schedule a consultation today and gain peace of mind knowing that your assets are in trusted hands. If you would like to learn more about divorce and reevaluating your estate planning, please visit our previous posts.

Reference: Kiplinger (April 15, 2024) “Don’t Forget to Update Beneficiaries After a Gray Divorce”

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Category: Beneficiaries

Understanding Primary and Contingent Beneficiaries is essential for Estate Planning

Ensure your Child’s Future is Protected with Estate Planning

Addressing your Estate Planning during Divorce is Critical

Sometimes, a Professional Trustee is a Good Idea

Should You Tell Beneficiaries Their Inheritance?

Estate Planning with Annuities can be Complex

Creating a Trust to Avoid Probate Nightmares

Diverse Family Structures Have Unique Estate Planning Challenges

Understanding the differences between ABLE Account and Special Needs Trust

Updating Beneficiaries after Gray Divorce

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