This article in CNN Money describes three assets that could cause you to “unwittingly disinherit intended beneficiaries, including your children, from significant portions of your estate,” namely your 401(k) plan, your IRA account, and your life insurance.

You can name anybody you’d like as a beneficiary in your will or trust, but when it comes to 401(k) plans it’s your spouse who is entitled to the money when you die. “If you want to leave a 401(k) to someone else, your spouse must first file a written statement waiving rights to it.” Even a prenuptial agreement won’t help if you want to keep your 401(k) assets out of the communal pot, you’ll have to convince your spouse to sign a waiver after you’ve tied the knot. “A person can’t give up spousal rights to inherit a 401(k) until actually married. ‘A prenup by itself is not a valid waiver according to the rules governing 401(k) plans.’”

Who will inherit your IRA or your life insurance is a little easier to control than who will inherit your 401(k). In the case of IRA or life insurance accounts the person named as the beneficiary on the account will always take precedence over a beneficiary named in your will.  The most common inheritance issues we see with these accounts is when people forget to update their beneficiary forms after a significant life change such as a divorce or the birth of a child. In these cases it’s important to review and update your beneficiaries every 2-5 years to ensure there’s no confusion between your will and the designated beneficiary on the account.

Having a will or trust is important, but they are only a piece of a whole plan—a plan that likely includes many pieces. Being aware of all the pieces of your estate plan, and keeping those pieces working together and in harmony, is essential to ensuring that your family and your legacy is protected.

There are two basic kinds of trusts—revocable and irrevocable. Revocable means that it can be revoked or changed so long as the grantor (the person who created the trust) is still living and is competent to do so. Logically enough, an irrevocable trust generally cannot be changed once it has been signed.  The reason this question of revocability is so important is because a trust is not merely a set of instructions for how your wealth should be distributed, a trust actually owns the property placed within it, with the person or people serving as trustee (usually for a revocable trust this is the grantors themselves, while they are living) controlling the trust property within. It is for this very reason that trusts can be such a powerful and flexible tool for tax planning and estate planning.

The specifics of your trust will vary greatly depending on what you hope to accomplish.  Parents of young children may wish to include a general trust for the benefit of all the children, with distributions made to their guardians as necessary. This general trust can be split into separate individual trusts when all of the children have reached a certain age or graduated from college. Parents (and often grandparents) may want to include education trusts under the umbrella of their revocable living trust. Many families feel it is important to include instructions for charitable giving in their estate plan, and may choose to set up a charitable trust with their children or grandchildren as trustees. Pet owners often create pet trusts to ensure that their animals will be well cared after the owner has died.

A trust, much more than a simple will, allows the grantor far greater control over his or her assets—and for a longer period of time—which is why trusts are particularly useful for anybody entering into a second or third marriage, or for any parent who worries about the choices a beneficiary might make once they come into their inheritance. Unlike a simple will, trusts are designed to withstand the test of time, allowing you to leave a legacy that can last for decades.

But everybody knows that the main purpose of a will is usually to dispose of your assets and effects. In its most basic form, a will should include these important parts:

• The testator’s (Will-Maker’s) name and crucial information
• Nomination of an executor to carry out the wishes of the testator
• The names of the beneficiaries
• Instructions as to how the estate should be distributed to the beneficiaries
• Signature of the testator and the date signed
• Signature of witnesses and the date signed

As mentioned above, this is a will in its most basic form, but in fact most wills will also contain instructions for probate, instructions regarding the payment of debts and taxes, the names of any organizations to receive charitable distributions, a mention of relatives who may purposefully NOT have been named, and more.

Because a will can be so basic, many people believe that a will can easily be created on one’s own, without the help of an estate planning professional; in fact, there are plenty of companies who offer “Do It Yourself” will creation software for a fee. However, it is important to understand that while a will itself can be very simple,  the federal and state tax and probate laws are rarely so.  If you feel your estate is small and your wishes are modest then by all means keep your will short and sweet. However, we strongly urge ALL of our readers (even those with small and simple estates) to have an estate planning professional at least review your will and advise you as to its validity before you sign it and tuck it away.

1. Neglecting to fund your trust. A trust can be a wonderful tool for protecting your assets; flexible and customizable, a useful trust can be created for just about every situation.  But a trust is like a strongbox—if you don’t fill it up it has nothing to protect.  Accounts and assets must be put in the name of your trust for it to work as you’ve designed it to.

2. Not enlisting the help of an estate planning attorney. There are a number of Do-It-Yourself will and estate planning programs out there that promise you a full estate plan for a cheaper price; but estate plans are complicated things, requirements change depending on your state of residence, the size of your estate, the age and situation of your beneficiaries, and much more.  If you aren’t able to work with an attorney to create your plan, at the very least we urge you to have an attorney review your plan before you sign it.

3. Neglecting to mention previous estate planning documents, or making unofficial changes in the margins of documents that have already been signed. When creating a will or a trust or any other common estate planning document it is usually necessary to revoke any previous documents so there is no confusion about which document is current and valid.  Neglecting to do this can end with your assets tied up in probate court for months or years—or even worse, invalidating both documents completely.

4. Putting your plan somewhere safe—somewhere so “safe”, in fact, that nobody can find or access it! People recognize that estate planning documents are things of value, and as such should be protected in a locked filing cabinet or safe deposit box.  Wherever you choose to store your documents, be sure one or two trusted individuals have not only the knowledge of where the documents are, but also the ability to access them.  An estate plan does no good if it cannot be accessed when it’s needed.

5. And finally, one of the most common missteps that can sabotage your estate plan is failing to update your plan regularly. Not only do federal and state laws change periodically (as we have recently experienced) but you will undoubtedly experience changes in your own life and fortune.  Failing to update your plan to keep up with the law or with your own life can result in an estate plan that is as useful as a car you neglected to maintain—it may look fine on the outside, but it simply won’t run anymore.

Probate is the process by which the court identifies the assets of a person who has died, and facilitates the distribution of those assets  and transfer of title to the persons entitled to them. It sounds like it should be simple, but even in the best of circumstances there are procedures that must be followed to the letter, and the actual process (depending on the size of the estate and the laws of the state in which the property is being probated) can take anywhere from 6 months to a few years.

You may wonder why probate can take so long, especially if the deceased person has left a will making their wishes clear.  A good will can certainly make the process easier, but even with a will, there are certain steps that must be followed to complete the probate process, some of which can be very time consuming.  Some of these steps include:

• The appointment of an executor or personal representative
• Verification of the will
• Taking an inventory of assets belonging to the deceased
• Giving notice to creditors
• Paying valid claims against the estate
• Preparing and paying taxes
• Notifying beneficiaries
• Distributing the assets to the beneficiaries or heirs

If you think that just reading the above paragraph takes your breath away, imagine the confusion of having to actually go through all of those steps—and possibly more!

Whether or not your estate will eventually be subject to a lengthy or expensive probate often depends on a number of factors: the size of your estate, how your assets are held, and how cooperative your next of kin may be. But one way to increase your chances of avoiding probate is to have clear (and clearly valid) estate planning documents which are designed to do just that. This would usually mean a revocable living trust.  If however, your assets are valued at less than $100,000 at your death, then in California there is a simplified procedure to avoid probate even if you do not have a revocable living trust and provided that your designated beneficiaries or heirs cooperate with one another. There are other ways to avoid probate by titling assets in a certain way, but these alternatives are usually only effective in limited circumstances and often create other problems. These include: joint tenancy, Pay On Death (“POD”) and Transfer of Death (“TOD”).

If you are concerned about probate, or would like to know more about how you can protect your assets and help your loved ones avoid a lengthy probate, contact our office—or a qualified estate planning attorney in your home state—to discuss your options.

Probate: [from the Middle-English probat, from Latin probatum…] a : the action or process of proving before a competent judicial authority that a document offered for official recognition and registration as the last will and testament of a deceased person is genuine. b : the judicial determination of the validity of a will.

This Merriam-Webster definition of probate doesn’t make it sound so bad. Quite simply, it is the process by which the court determines the legal property of a person who has died, and decides to whom those assets will be distributed. It sounds like it should be simple… but somehow probate is hardly ever simple. Even in the best of circumstances there are procedures that must be followed to the letter, and the actual process (depending on the size of the estate and the laws of the state in which the property is being probated) can take anywhere from 6 months to a few years!

A good will can go a long way toward keeping the probate process on the short and easy end of the spectrum; but even with a will, much of your probate experience will depend on elements outside your realm of control. There are certain steps that must be followed to complete the probate process, including:

• the appointment of an executor or personal representative
• verification of the will
• taking an inventory of assets belonging to the deceased (which can be very difficult if good records have not been kept)
• giving notice to creditors
• paying valid claims against the estate
• preparing and paying taxes
• notifying beneficiaries (not all of whom will be easy to find)
• and eventually distributing the assets to the beneficiaries or heirs

If just reading the above takes your breath away, imagine having to actually go through all of those steps—and possibly more! The good news is that you don’t have to go through it alone, our office can help you navigate the tangled probate maze from beginning to end—from filing the first court documents to protecting your eventual inheritance—ensuring that your probate experience goes as quickly and smoothly as possible.

A Will: A will is a formal declaration of your wishes. It is a document you create to declare the extent of your privately held property (it does not cover jointly owned property) and what your wishes are for the distribution of that property. You name an executor to carry out your wishes, and you can even include a nomination of guardian for young children in your will. A will does not go into effect until after you die; before then it is simply a piece of paper containing your private wishes. However, once you have passed away your will no longer remains private, it now becomes a matter of public record, available to anybody who would like to view it, and overseen by the court in a sometimes lengthy and expensive process called probate.

A Trust: A trust is a far more extensive tool than a will. In fact, there are many different kinds of trusts, each of which may be used for specific situations. Most trusts created for estate planning purposes are revocable living trusts (or RLTs.) An RLT is a document created not simply to distribute your property, but to own your property on your behalf, to be invested and spent for your benefit or the benefit of your named beneficiaries. As such, a trust takes effect as soon as you sign it and your property is protected by and subjected to the trust parameters as soon as you place them in the name of your trust. There is a lot of flexibility available with a trust, and yours can be created to fit your unique situation. Most RLTs name the trust creators as the initial trustees, nominating individuals or banks to take over as trustee when the creator becomes incapacitated or passes away. The benefit of a trust is that when the creator passes away, property is not merely distributed and that’s the end of it; the creator can instruct the trustee to distribute the money slowly and in any number of ways, even to the extent of creating new trusts for each beneficiary. Trusts can last for generations, as evidenced by the enduring Kennedy trusts.

Wills and trusts are necessary tools in estate planning, each one working in unique situations. Your attorney will be able to tell you which one is best for your family.

Your first reaction might be “Of course not!” But don’t speak too soon. Most estate plans are created at least in part to protect heirs (generally spouses and children) from the sometimes devastating blow of estate taxes; but with the estate tax in a confusing state of flux this year some of these plans won’t work as their creators intended—and heirs may end up looking for a way to protect themselves against the unintended consequences of well-intentioned estate plans.

 With the threat of the return of the estate tax in 2011 for estates valued over $1,000,000, the surviving spouse of a person dying this year may now have good reason to consider a timely disclaimer.  Doing so may eliminate tax as assets pass on down to the couple’s children.  For more information on how this works, see our article entiled “Repeal of Estate Tax May Warrant a Fresh Look At the Use of Disclaimers To Avoid Death Tax”

Although the use of a Disclaimer may be a good solution in some cases, there are no easy general answers to the question of whether you should exercise the right of disclaimer.  Much will depend upon the state of the estate tax law at the time of your loved one’s death.  One thing is clear, however:   most people would be well advised to include the option of disclaimer in their trust or wills, “just in case”.   If you have any questions whatsoever about an inheritance—or about your own estate plan—contact your elder law or estate planning attorney for help.

“Nov. 29, 1895. I give to my cousin, Nettie M. Cowan, all money that I have in the Bowery Savings Bank.
Aletta Stager, 131 Berkeley Place, Brooklyn, N.Y.”

Of course, things have changed in the probate and estate planning world in the one hundred plus years since Ms. Stager executed her will. A glaring omission from the two lines above is the nomination of an executor. If you don’t nominate an executor in your will the court  may choose one for you. Also, even if you have only one person in mind as your beneficiary, you’ll want to include secondary beneficiaries, who can include charities and non-profits if you don’t have any family or friends to whom you’d like to leave your estate.

Even back in 1895 Aletta Stager’s property ended up going to the state of New York when no heirs—including the named beneficiary—could be found. Perhaps if Ms. Stager had included a couple more lines in her will her estate could have gone to benefit her favorite charity instead of being swallowed up by the state.

What are your options when you know your kids won’t like what you’ve put in your will or trust? Many people choose to simply keep their wishes secreted away in a safety deposit box until they’ve passed away and then let everyone fight it out on their own; but this only puts off the bad feelings and can often cause lasting rifts among siblings. This strategy of secrecy also doesn’t address what happens if you become incapacitated and need one of your trustees or agents (in all likelihood one of your children) to take over your affairs.

A better option than secrecy may be to invite your children to your final meeting with your estate planning attorney.  If the attorney is willing, and if you have good relationships with your children, this may be a good move.  It could give you an opportunity to share your plans in the presence of a knowledgeable professional who is on your side; it also gives your children the opportunity to ask questions and get clear and immediate answers. More often than not tension about mom and dad’s estate plan stems from a lack of understanding, or a worry that mom or dad have been taken advantage of.  

Such a meeting might be especially valuable where you have remarried and plan to provide for your new partner in your plan, before providing for children, either yours or your new spouse’s.  A meeting might help explain your wishes.  Ask your attorney for his or her view on this when you discuss your plan.   While a family meeting is not for every familiy, still for many it can be reassuring, educational, and put everyone one the same page while moving into the future.

The answer to the question in the title, above,  is “no”; life insurance and retirement benefits do not have to go through probate if the account has a named beneficiary. Benefits from life insurance accounts can be paid directly to the named beneficiary, and money from IRAs, Keoghs, and 401(k) accounts transfer automatically to the named beneficiaries of those accounts as well. The persons named as beneficiary, however, will most likely want to consult with a financial advisor before drawing these benefits, as there may be tax ways of handling these accounts which minimize tax to the beneficiary.

Yet another type of account that is not subject to probate is a “pay on death” (or POD) account, the money from which can pass directly to the named beneficiary upon the death of the owner.

Probate laws vary from state to state, so contact our office—or your own local attorney who specializes in probate—for more information.

Wrong.

Kudos to you if you’ve already created your estate plan, you are one step ahead of the rest of the pack; but people and families grow and change, and your estate plan should change as your life does. Your estate plan should be reviewed regularly (we recommend the tax season as a good time to review your plan), but listed here are some life changes that will definitely require you to update your estate plan:

The birth or death of a beneficiary or fiduciary. This includes the addition of new children or grandchildren, or the loss of a parent or sibling.

Your own marriage or divorce, or the marriage or divorce of one of your beneficiaries. If you named your daughter’s husband in your plan five years ago when they were happily married, you’ll want to be sure to remove him after they go through that messy divorce.

Moving to a new state. Tax, health care, and estate planning laws vary from state to state, and your estate plan will have to change accordingly. This is especially true if you are moving from a non-community property state to a community property state.

A significant change in your financial status, or the status of your business, (if you have one). For the most part, your estate plan is designed based on the size of your assets.  Different strategies are more effective for large estates than are for small; and if your financial status changes significantly, so should your estate planning strategy.

The simple passage of time. This may sound like the least important reason to update your estate plan, but it is actually the most common. Naming your parents as trustees when your children are minors is fine, but after fifteen years you may want to give your parents (who are now entering their 80s) a break and name your 37 year old son as trustee instead. In addition, there are some documents that should be re-executed from time to time to avoid them being construed as ‘stale”, e.g. your Advance Health Care Directive, your Nomination of Conservator, and your Nomination of Guardain for Minor Children?

Changes in the Tax Law: changes in the tax law can really require another look at your existing plans. For example, couples who prepared “Living Trusts” back in the 1990′s often used “A–B” trust splits on the first death in order to minimize estate tax.  With the increasing exemptions, those trust splits may now no longer be necessary for most couples’ estates, and may actually be a hindrance.  See our Article “Review Your Living Trust: Older Ones May Need Revision”.