Making Sure Your Heirs Get What You Intend

We all want to assure that, after we’re gone, our assets go to the loved ones we intend—in the ways, amounts and proportions we intend—without unintended consequences.

Yet some estate plans fail to achieve this goal. Benefactors’ intentions, as set down in estate documents, can be derailed. The roots of such problems can sometimes be traced to two common scenarios.

The first is the rapid purchase of estate planning services arranged through a so-called seminar, perhaps with the allure of a free dinner at a posh steakhouse.

If you’ve attended one of these sessions, you may have been visited subsequently by an individual identifying himself/herself as an estate planner who arranges to prepare estate documents for you, including a will and a trust. These organizations market their services heavily to baby boomers who may not have made extensive plans for their estates.

Or, as a well-off physician or dentist, perhaps you’ve gone another route: hiring an attorney to craft an estate plan. It may not be your first plan, as you may have a different spouse now and want to change things to reflect your new life circumstances.

In both scenarios, regarding beneficiaries, there’s an estate-planning elephant in the room: For many people, the majority of their asset value is held in accounts such as 401(k) plans, Individual Retirement Accounts (IRAs), annuities and pensions. The institutions that hold these accounts require the designation of beneficiaries for the assets.

This is a subject that doesn’t tend to come up in estate-planning seminars. (Why complicate a potential sale with these details?) And though a careful estate-planning attorney will be sure to ask clients what beneficiaries are designated on various financial accounts, this important point is sometimes overlooked.

Holders of these accounts may forget which beneficiaries they specified years earlier—for all they remember, it may have been their first spouse and they’ve now remarried. And beneficiaries tend to be more front of mind when executing a will or a trust. As a result, people can live out their remaining years under the gross misapprehension that all their liquid assets will necessarily go the beneficiaries in their wills or trust, without regard to their account-designated beneficiaries. But in most—if not all—states, these beneficiaries tend to carry more weight than those designated in wills or trusts.

After you’re gone, this can lead to a lot of confusion and ultimately disappoint heirs. Moreover, depending on whether and how some other assets are designated in estate planning documents, in some states this can relegate them to probate, a legal process that can be long and expensive, when otherwise, this process wouldn’t be required. To prevent this, and to generally assure that the heirs you intend inherit the assets you intend, consider these points:

• Be aware of what beneficiaries you’ve designated for your various accounts. If you don’t remember, check with these institutions. When you plan your estate, be sure to account for these account-designated beneficiaries.
• Avoid estate-planning seminars, which often result in cookie-cutter products. Instead, you probably need a custom plan, even though it may cost more. The seminars are often ruses to get you to fill out forms disclosing your assets and where they’re located. When the planner comes to your door, in addition to estate planning documents, they may try to sell you an annuity to a generate lucrative commission.
• Make sure the beneficiary designations on your financial accounts and those in your will are congruent and up to date. If you’ve remarried, you probably want to remove your ex-spouse and designate your new one. In case a beneficiary child pre-deceases you, it’s a good idea to have considered whether you would want the assets bequeathed to this child redistributed to your surviving children or have them directed to your grandchildren. Failure to stipulate this choice can mean default redistribution, which can have the unintended consequence of disinheriting grandchildren.

Assuring that the right heirs receive what you intend, as efficiently as possible, also involves understanding the laws in your state governing real estate bequests. In some states, you can bequeath property through a beneficiary deed, which conveys the property to your heir upon your death without probate proceedings, which can be costly and time-consuming. Thus, in such states, there’s no need for most people to include real estate in a trust.

And those who are sold services after attending one of the commonplace estate planning seminars may end up paying for a trust only to later find that the main assets they’d planned to include in the trust—those held in beneficiary-designated financial accounts—cannot usually be included.

So if you can’t use or don’t need a trust for these items, what should you use one for?

For most people, the main reason to have a trust is potential incapacitation, which is not uncommon. In this event, a trust can empower heirs to manage your estate without first going to court to get a conservatorship, which can be time-consuming and costly.

Also, a trust can serve as an effective way to manage your estate from the grave, as the practice is called. Trustees are appointed to assure that assets are distributed according to specified conditions. This can be a good way to assure that heirs with psychological or drug problems don’t burn through their inheritance too quickly or spend it on the wrong things. Trusts can also be a good way to assure the care of a disabled relative.

The goal is for all estate-planning documents to work in concert, without conflicts, costly probate proceedings and confusion or disappointment among heirs that can lead to litigation and long-term bad blood. After all, you want to leave your heirs assets, not problems and conflicts.

The best route to avoid these problems is to sit down with a qualified estate planner to craft a custom plan to meet your needs, executing documents that work together and reinforce each other. This includes acknowledging provisions for account-designated beneficiaries.

David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.