Death & Taxes Blog

I know NOTHING about estate planning and find the whole subject to be a bore but this gentleman's blog.  Joel Schoenmeyer.  He makes it entertaining with his brutal honesty.  This is his latest post (I put the part I found entertaining in CAPS).

http://www.deathandtaxesblog.com/

Designating Beneficiaries

Professor Beyer's blog post yesterday pointed me to this Forbes article on "Why Your Will Should Name Designated Beneficiaries."

There's some good advice here. To add my two cents:

1. The estate planning process can be of great help with financial planning as well (which is why I think you need an attorney AND a financial planner). Why? Because both types of planners take a look at all of your assets (although sometimes for different reasons). We want to make sure your assets "work" -- that they are invested and titled properly so that they do what you want them to do, in lots of different situations (to pay for college and retirement, to protect you in case of creditor issues or disability, and to pass correctly to your beneficiaries when you die). Notice I said "pass correctly" in the previous sentence. Correct beneficiary designations allow your assets to pass:

-as efficiently as possible, without being reduced by taxes or other costs (like probate fees or fees relating to litigation); and

-appropriately to your beneficiaries. This is a big problem I see with beneficiary designations and with clients who DON'T take an overall look at their assets when they plan their estates. Let's say you have an 18-year-old son who is, um, not very responsible. We set up a trust so that, upon your death, son's property will be held in trust for him until age 40. Son can't reach this property -- it's held for son's benefit at the trustee's discretion. That's great, but what if you have a $5 million life insurance policy that does not name the trust as beneficiary (but instead names son individually)? Because of this mistake, son gets his $5 million outright immediately upon your death (with no strings attached). Cue the purchase of a Porsche, and a fiery death by driving over a cliff while snorting coke off the dashboard.  (You got to love the guy.)

2. As the Forbes article says, you (or your attorney or your financial planner, or both) need to read the IRA custodial agreement, to find out what your options are for designating a beneficiary. They will also know the rules about how quickly beneficiaries have to take distributions, which is often of great importance (the faster your beneficiary has to take money out of the IRA, the faster he or she has to pay taxes on the IRA -- so deferral is a great idea).