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When It Comes To Estate Planning, Coordination Is Key

Dominoes LeaningThe primary reason most people engage in estate planning is to name who they want to receive their assets when they pass away. Beneficiaries can be named in a will, a trust or pursuant to a beneficiary designation. When naming beneficiaries, it is critically important that your will and your trust (if you have one), not only coordinate with each other, but with the beneficiaries you have named on your various investments, as well as with how your assets are titled. Failure to properly coordinate in all of these areas could have unintended, and in some cases, disastrous consequences.

Will/Trust

Both a will and a trust allow you to name who you want to receive your assets when you die. However, those instruments have control over different assets:

  • A will only controls assets that are subject to probate upon your death. Assets subject to probate are assets that are titled in your name alone and for which there is no beneficiary named to receive that asset upon your death. If you don’t have any assets subject to probate at your death, it doesn’t matter who you have named as beneficiaries in your will, it will be ignored and of no effect   
  • A trust only controls assets it owns. Your trust can become the owner of an asset two ways:
    • by you transferring an asset to the trust while you are alive; and
    • by you naming the trust as the beneficiary of an asset upon your death, either in your will or pursuant to a beneficiary designation.

      If your trust does not own any assets, it will be ignored and of no effect.

If you have both a will and a trust, your will should state that your trust is the sole beneficiary of your estate. This will ensure that the assets subject to probate end up in your trust once probate administration is completed.

Beneficiary Designation

A beneficiary designation comes in two varieties:

  • a true beneficiary designation associated with certain investments like an insurance policy or a retirement account like an IRA or a 401k; and
  • a transfer on death designation, which essentially is a beneficiary designation for assets such as bank and investment accounts.

The beneficiary you have named on a bank account or a life insurance policy, for instance, will become the owner of that bank account and will receive the death benefits of that life insurance policy upon your death.

Titling of Assets

An asset can be titled just in your name or in joint names with one or more people. If an asset is titled in your name alone and there is no beneficiary named to receive that asset upon your death, it will be subject to probate upon your death. If an asset is titled jointly with others and there are survivorship rights attached to that ownership, your interest will be extinguished upon your death and the joint owners who survive you will continue to own that asset.

What Happens if You Fail to Coordinate?

Your will, your trust, your beneficiary designations and how an asset is titled act independently of each other. Consequently, if the beneficiaries you have named in those instruments and beneficiary designations are not aligned with each other and are not aligned with how your assets are titled, you could end up with a mess of an estate plan.

Seek Counsel

To avoid inconsistencies in your estate plan and make sure that your intended beneficiaries are your actual beneficiaries upon your death, you should enlist the help of an experienced estate planning attorney. This will ensure that the estate plan you put into place mirrors the estate plan you intended to put into place. 

For further concerns about your estate plan not addressed by this article, please contact Jay David or another member of Foster Swift’s estate planning team.

Categories: Estate Planning


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