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6 Reasons to Update Beneficiary Designations

As noted in the December 16th Forbes article by Harper Willis, here are six reasons you might need to update your beneficiary designations:
1. You got divorced or remarried. Some states automatically eliminate former spouses as beneficiaries; others don’t. Check with an estate-planning attorney to find out the law in your state.

2. You changed jobs and rolled over your retirement planWhen you move money from your former employer’s retirement plan into your new one or into an IRA, your beneficiaries lose any claim to those assets. So you’ll want to ensure they’re named as beneficiaries on the new account.
3. Your primary beneficiary died. In this case, you’ll absolutely need to update your designation. If you had also named a secondary beneficiary, he or she will move up to primary status, but you’ll now want to name a new secondary, just in case.
4. Your financial institution changed ownership. These days, when banks, brokerages or mutual funds merge, they sometimes drop the beneficiary designations for older accounts.
5. You had a child or grandchild. One caution, here: Don’t designate a minor (a child under 18 or 21, depending on your state) as a beneficiary. If you do, the state will appoint a conservator of assets until the child comes of age.
Instead, if you want this child to inherit your financial assets, create a trust for his or her benefit and name the trust as the beneficiary. (This might cost around $1,000 or so.) That way you control the terms under which your child or grandchild has access to the funds.
6. Your beneficiary became disabled. In this case, you’ll need to amend the designation or risk jeopardizing the beneficiary’s eligibility for Social Security’s Supplemental Security Income (SSI) benefits. The SSI program provides income and Medicaid insurance to disabled people with less than $2,000 ($3,000 for a couple) in what are known as “countable resources.”
Set up a Special Needs Trust for the benefit of the disabled person and designate the trust as the beneficiary on your accounts.

The Gift of Education

In the National Law Review, Terri Stallard, a Kentucky estate planning attorney talks about ways grandparents can give to their grandchildren.

Many grandparents want to enrich the lives of their grandkids, but are not sure the best way to accomplish this with their estate plan. I encourage clients to consider helping their grandchildren with the future costs of education. The proper planning can help grandkids avoid hefty loans and be tax-efficient for the donor.

A grandparent may currently gift up to $14,000 per grandchild (or to anyone) per year tax free ($28,000 if a married couple gift-splits). Any gift over that amount requires the filing of a gift tax return.

However, if you pay for a grandchild’s education expenses directly to the provider (i.e., educational institution), the gift is excluded from your annual exclusion amount. For purposes of this exclusion, the term “educational institution” covers a broad range of schooling, such as primary, preparatory, vocational or university institutions. This kind of payment is also exempt from the generation-skipping tax (which is too complicated to explain herein, but can significantly reduce a grandparent’s gifting amount). In short, if you pay $40,000 to cover your grandchild’s tuition directly to the school, you can still gift up to $14,000 tax free to him or her in the same year. Some institutions may even allow a donor to pay upfront the applicable years of education at a locked-in tuition rate, so as to avoid rate hikes.

Another option to consider is a 529 college-savings plan. One of the biggest benefits of this plan is that it can continue operation when the grandparent is no longer around to write checks to an institution. A grandparent can gift up to the annual exclusion per year tax free, or make up to five years’ worth of the annual exclusion gift ($70,000 per single donor or $140,000 per couple) in one year to benefit a single individual. However, this has its drawbacks. If you gift the five year maximum amount in one year, any other annual exclusion gifts to that beneficiary for the next five years will incur gift tax consequences. Further, if you die within five years of the date of the gift, a prorated portion of the gift will be included in the estate tax calculation.


Planning can help prevent estate tax issues

Many families, planning for a transfer of wealth is something they may think about, but never take the time to act upon. Unfortunately, this failure to establish a proper estate plan can significantly affect a family’s long term financial stability and can lead to the payment of substantial estate taxes. Although this can be difficult for many families to understand – indeed, it can be a challenge to set plans for events that may not occur for many years. The following article written by Law Offices of Connie Yi, PC (an estate planning law firm in Alameda county)  -illustrates with the example of the recent death of a celebrity – just how important it is to work with a professional to craft an estate plan.

When actor James Gandolfini, best known for his role as Tony Soprano in The Sopranos, died in Italy earlier this year, it took many people by surprise. While his family and his fans mourned, reports arose indicating that nearly half of Gandolfini’s estate, worth approximately $70 million, was set to be paid in estate taxes. Unfortunately, it appeared that Gandolfini, who was survived by his wife and two young children, had not taken steps to draft an estate plan that would have ensured the maximum transfer of his wealth to his family.

As further reports surfaced, experts determined that their initial assessment of Gandolfini’s estate had been based on incomplete information. In fact, many people had estimated the actor’s estate tax bill based solely on assets listed in his will. Fortunately, Gandolfini had taken the time to work with professionals to set up other estate planning vehicles. Although specifics have not been made public, many believe that Gandolfini had made arrangements for members of his family to have access to funds held in irrevocable trusts, life insurance policies and other accounts. At the end of 2012, Gandolfini had even drafted a new will designed to take advantage of the federal gift tax exemption, worth $5.12 million, that expired at the end of that year. It appears that early estimates that the actor owed approximately $30 million in estate taxes were significantly overstated.

Gandolfini’s estate was larger than most families in the U.S., but case illustrates an important point for everyone. It is not enough to hope that everything turns out for the best when it comes to transfers of wealth. No matter the size of the estate, planning is essential. This may involve not only drafting a will, but also trusts, retirement accounts and other vehicles, as well.

For more information, contact an attorney like myself who specializes in estate planning, who can explain your options and help you achieve your goals.


“What do you mean I don’t get it all? We were married”.

Spouses are often shocked when they realize they aren’t entitled to the entire estate just because they are married. People mistakenly think that because they are married, they receive the entire estate when a spouse passes away.
Unfortunately, a spouse can find themselves having to share a deceased spouse’s estate in unanticipated ways.
First, it is important to understand the difference between probate and non-probate assets. Non-probate assets are assets that are jointly owned, have a beneficiary designation or are owned by an entity such as a trust. Bank accounts that are in joint names or that have a payable on death beneficiary listed are examples of non-probate assets.
Probate assets are those that are title solely in the decedent’s name and don’t have a beneficiary designation. Since these assets don’t have an obvious designated post-mortem owner, their ownership needs to be determined.