• 22
  • February
    2011

In the last post there was a discussion of living trusts and the benefits and risks of avoiding probate. The point of that post, and of this one with the continued discussion, is that it is essential to coordinate nonprobate assets (such as those in a living trust) with assets that will go through probate. If you look at each type of asset alone, in its own "silo," you may have a perfectly good plan for each type of asset, but the lack of coordination can end up completely thwarting your objectives.

An example used in the New York Times article that began the discussion (see the link below), was of a couple who married late in life. When the wife died, it turned out her retirement accounts and life insurance policies all named relatives other than her new husband as beneficiaries. Those designations superceded her will, which stated her desire to leave her assets to her husband.

The husband was able to get some of the retirement and insurance assets, but in the end he lost out on sixty percent of what he could have and should have gotten if the wife had changed her beneficiary designations.

It is a good idea to make a list of your assets, what types of accounts they are in and how they are titled. Here are some examples:

Designation of Beneficiaries - This says who should receive assets that will not go through probate. IRAs can go to anyone, but you need permission from your spouse if they are not the beneficiary of your 401(k). The prior example is a potent one for keeping these up to date.

Joint Accounts - A typical form is joint ownership with right of survivorship, sometimes designated as J.T.W.R.O.S. Both owners have access to the assets during life, and when one joint tenant dies, everything goes to the survivor.

This type of ownership is risky for non-spouses. Either owner can remove all of the money at any time. Also, non-spouses could be subject to gift taxes, and subject to each other's liabilities.

Real Estate with Co-Ownership - Florida estate planning attorneys note that these assets have many of the same issues as joint bank and brokerage accounts.

Assets Payable/Transferable On Death - Either wording has the same effect. The named person can collect the asset when the owner dies. The danger of this type of asset, or more specifically the danger of not coordinating with other assets and plans, would be a plan to leave one child some stock that is transferrable on death, and other children some other assets. If the stock is sold before the owner dies, the child who was supposed to inherit it gets nothing.

Source: New York Times "Efforts to Avoid Probate Can Carry Their Own Risks" 2/9/2011