Posts Tagged ‘last will and testament’

News Flash: Beneficiary designations are a Big Deal

Posted by

 

Grove Thoughts

Use Care: Beneficiary Designations Trump Your Will or Trust.

Always a good thing to meet with your investment adviser and have your insurance coverage and investments properly aligned to meet your needs.   However… Some times …  after all that planning … the act of filling out your beneficiary designation forms might seem like an afterthought.

As mundane as the beneficiary designation process may seem, it is important to keep in mind that the beneficiary designation form on file with the company will control ownership and distribution of the life insurance policy/individual retirement plan after you die: Not your will or your trust.

Example: If you have a life insurance policy for $100,000.00 and you name your son Mickey under the beneficiary form, Mickey gets the cash on your death. If you also named Minnie to receive your assets under your will, she sees none of that money.

Knowing that the designation trumps the Will or Trust, great care should be used when filling the beneficiary designation form out.

The Change Forms the Companies offer are not always understandable or helpful.

The insurance companies and IRA custodians have pre-printed beneficiary designation forms that they make you use. Keeps them out of hot water because they are a consistent element of their operations, which leads to fewer mistakes when the time comes to process them.   They are (for the most part) constructed to fit the company’s processing needs but can sometimes fall short when they are being used to meet your goals. This is because sometimes the company’s processing needs are not lined up with your wishes.

Ask yourself some questions when filling out these forms.

What happens if one of my beneficiaries dies before I do?

One of the biggest surprises for unwary clients is that so many of the forms default to the “survivorship rule”. These forms with the survivorship rule in them divide a predeceased beneficiary’s share equally among the surviving beneficiaries. This “survivor takes all” result works for some people, but not most people. For example, some folks would like to see a grandchild take a predeceased child’s share rather than leave the grandchild out by having the proceeds split only between the children lucky enough to survive them.

If the survivorship rule is not what I am looking for, what are some alternates available?

So now we enter into the world of Latin phrases. But … do not worry. These are not as hard to grasp as it might seem. There are two main phrases to remember: “by right of representation, per stirpes” and “by right of representation, per capita”. The term “per stirpes” means by root or branch, while the term “per capita” means by head.

Per stirpes: Per stirpes is the most popular of these two alternatives. Per stirpes boils down to meaning that the percentage planned for one beneficiary that predeceases goes to the deceased beneficiary’s heirs by blood: Often their children or grandchildren.

Example: If your son Mickey was entitled to 50%, but died before you did, his two surviving kids (your grandkids), Tammy and Timmy would each take 25 %. Your surviving daughter, Minnie is entitled to the other 50%.

Per capita:  Per capita is the rarest of these two alternatives. Per capita boils down to meaning that the percentage planned for one beneficiary that predeceases is ignored. Instead the deceased beneficiary’s heirs by blood: Often the decease beneficiary’s children, step up onto the same level as you children.

Example: Your son Mickey was entitled to 50%, but died before you did and your surviving daughter, Minnie was entitled to the other 50%. Mickey had the two kids Tammy and Timmy. Tammy and Timmy step up on the same level as Minnie. That means Minnie, Tammy and Timmy would each receive 33 1/3%.

What most people want is a per stirpes distribution at death vs. the survivorship rule or a Per capita distribution.

What happens if I run out of listed beneficiaries?

The answer here can be found on the form but also may be in the policy or contract itself. Some companies default to have the proceeds paid to your estate, while some set your spouse, children and/or parents as beneficiaries if you run out or fail to name any beneficiaries.  Definitely get this question answered.

What to do.

Be sure to read the default provisions in your beneficiary designation forms. You need to know what they say so that you can make any appropriate changes to them.  Customize your designation if you have to do so. In many cases, the beneficiary designation forms can be customized to meet your wishes by adding and addendum (attachment) to it spelling out your intended desires.

Know that is ok to seek help too. A qualified estate planner can help you spot issues and help you to modify the beneficiary designation form so that it aligns with your wishes.


News Flash: Few People Actually Plan for Death or Incapacity

Posted by

 

Estate Planning Note:

AARP shared an article that reminds us how few of our neighbors have done Estate Planning.

See: http://www.aarp.org/…/info-2017/half-of-adults-do-not-have-…

The failure to plan for your death or incapacity can be painful for the family members left behind. This really rings true if you have underage kids or an asset like a family farm or other type of business that needs to be thoughtfully passed on to the next generation. The family assets can sometimes be tied up for years with fees and cost racking up.

With this in mind, this just might be the year to finally get this particular project done.

Have a great day.


Why did you put Latin in my Will and Trust?

Posted by

 

The legal phrases: “by representation”, “per stirpes”, “per capita”, “per capita at each generation” and “survivorship” are found in both wills and trusts. While they may appear to be gibberish, the phrases have meaning in the probate and trust world.  They each provide for a distinct rule used to distribute assets after a person dies.

It is very easy to become confused when one comes across this kind of mumbo jumbo. The phrases are a far cry from plain English. They are definitely “old-school”.  The reason for using this old-school terminology is history. The phrases are based on old English law which was developed centuries ago and then handed down through the ages.

As one would suspect, each legal phrase produces a different result when used to determine the people receiving your assets when you die. “By representation”, “per stirpes” and “per capita” are there to help determine how assets flow to your descendants. “Survivorship” is a short stop/ everything to the one in a named group who survives the decedent. I like to call that the “king of the raft” approach. This was game I played in my youth where we tried to be the last one standing on a raft in the lake.

This  photo  shows three simplified examples that compare three commonly seen approaches (Per stirpes, Per Capita, and Survivorship):

The “per stirpes” model is by far the most popular choice for the clients in our practice. The families we deal with seem to like the branch approach to distribution, where a child’s share works its way down to survivors that are the heirs of that child if he or she dies before they do. “Per capita” is less popular, but can be used if the grandchildren are thought to be on par with the surviving children. The “survivorship” model is used most often with older clients who have already spent down a great deal of their assets and want to leave smaller amounts to the surviving children immediately below them rather than spread the minimal assets among an extensive family tree of heirs.

The State of Wisconsin has a statute that covers this topic too. Wisconsin Statue Section 854.04: “Representation; per stirpes; modified per stirpes; per capita at each generation; per capita”, does a nice job of explaining the differences as well. It goes as far as to delineate between a per stirpes and a modified per stirpes approach. It also equates the phrase “by representation” to “per stirpes”. Finally, it also lays out “Per capita at each generation” and “Per capita”. Section 854.04, in its final paragraph, says: If the transfer is made under a governing instrument (Will or trust, normally) and the person who executed the governing instrument had an intent contrary to any provision in this section, then that provision is not applicable to the transfer. In short, your will or trust can override the statute. This is often the way to go. A will or trust can be drafted to modify the general rule so that the distribution plan can be modified to fit your family’s unique circumstances.

Use care to consider what happens when the beneficiary dies before the person whose estate is being divided. Most folks want the children of the predeceased beneficiary to take the share which their parent would have taken had he or she survived the decedent. If the plan for distribution isn’t spelled out that way, the assets could be divided equally among the surviving heirs and the children of a deceased heir might not receive the deceased heir’s share.

Be sure to get solid advice on this and other important planning topics from a qualified expert. Do not hesitate to ask about the options available to you when you do sit down to plan your estate.  That way you can be sure that your hard-earned assets will go to your loved ones in the way that you intend.


Why Use an Attorney for Your Will When You Can Download One for Free?

Posted by

There are certainly forms out there on the internet or on a book store shelf that just might work for you. However, there is a chance that they will not work for you.  Your heirs can really get burned when these do-it-yourself wills fail to work as intended.

Some time ago, two wonderful new clients came into our office with a homemade trust for us to review. The trust form had many blanks the form’s provider had incorporated into it. Many of the blanks were left unanswered. Unfortunately, when it comes to money mixed with the emotion of losing a loved one, it is very easy to disagree. Those open blanks made the trust so vague that a court would have been required to sort out the language if the trustee and beneficiaries disagreed on what to do. As anyone can tell you, the cost of airing issues in court can consume your assets in no time.

It also became clear that our new clients had no one to assist them with how to use the homemade trust after they bought it from the vendor.  In fact, the vendor made it clear it could not offer legal advice with its form. As a result, the homemade trust was not properly funded.

“Funding” is a term used to describe the process of transferring your property into your trust. Because they had no one to assist them with this, they failed to fund the trust with assets that should have been placed into it while funding the trust with other assets that might have been better off going directly to a plan beneficiary rather than to the trust. These innocent missteps could have spelled trouble and cost a great deal of money after they passed. Luckily we were able to get them on track.

An attorney brings you the experienced advice that only he or she can provide after working in the law area for a number of years. A good quality estate planning attorney spends the time it takes to get to know you and find out what your goals are. Then, after that is determined, the attorney carefully drafts the documents needed for you to achieve those goals. Once the documents are drafted, he or she explains them to you and then assists you with the execution of your plan.

While it is very important to have your estate plan documents drafted correctly, you do not hire an attorney for the documents alone. It is very difficult to assure your plan will take care of you and your loved ones without an attorney’s advice and guidance. In short, the money you use to work with a qualified estate planning attorney is money well spent.