Taking a last inventory of all of your loved one’s assets and beneficiaries will help make sure nothing is overlooked.
Beneficiary designations are very important; make sure they are all current.
Whenever possible POD accounts or joint accounts and living trusts to pass assets outside of probate.
Gifts are also a good estate planning tool, but be careful of gift tax limits.
If you are helping a loved one organize their financial affairs in their final days, a will is often the first document you think of. And while a will be an important estate planning tool, there’s more to ensuring their plan goes smoothly.
Taking inventory of your loved one’s assets and their beneficiary plan makes sure that nothing is overlooked. This may help you find tax savings, update the beneficiaries, and even prevent dormant accounts from reverting to the state. In some cases, you may need to consult a qualified attorney or financial advisor in your loved one’s state of residence to clarify your best options.
Many accounts established as long-term financial instruments (e.g., life insurance policies, annuities, college savings accounts, 401(k)s, IRAs, pension benefits, brokerage accounts, or certificates of deposit) require beneficiaries when they are opened, but over time and through life changes, such as birth, death, and divorce, many people do not update their beneficiaries. Reviewing all accounts for named beneficiaries can ensure that the assets go to the intended parties.
This is important because an account with a specified beneficiary supersedes any will designations. Therefore, if an ex-spouse continues to be listed as a beneficiary, that ex-spouse inherits the assets regardless of their marital status or what the the will says. And even if that ex-spouse has already died, the account passes to the ex-spouse’s next of kin, regardless of the account owner’s wishes.
In addition, it is very important to make sure you are aware of all beneficiary-named accounts, as unclaimed accounts generally do not become part of the estate but instead revert to the state’s unclaimed property fund.
To check for open bank accounts, request a copy of your loved one’s credit report, which lists open accounts in their name. You can also look online for any unclaimed money sitting in a dormant account, and ask other family and friends about any accounts they may be aware of.
The FDIC database has many tools for checking on dormant financial instruments, even if the bank no longer exists. For insurance policy information, check with the insurance department in your state or the online Life Insurance Policy Locator.
Many joint bank accounts can be set up to allow right of survivorship, which means the assets are not subject to probate, but instead pass to the joint owner directly. This is common with accounts shared by spouses and sometimes between parents and children. In some states, right of survivorship is automatic, but in others, the primary account holder must request a notation on the account and supply the survivor’s name and Social Security number.
Alternatively, your loved one may designate one or more accounts as payable-on-death and name a beneficiary for each.
Unlike a will, a trust takes effect while the person is still alive, and is used to manage the estate both before and after the death. Depending on the situation, setting up a trust may yield some tax savings for beneficiaries despite the costs associated with establishing and maintaining it. Another advantage is that any assets in it are exempt from the probate process, which can save on probate costs and shelter the contents of the estate from certain creditors.
The IRS allows what’s called a lifetime gift tax exemption. An estate attorney or financial advisor can give the best guidance depending on individual circumstances, but generally someone can give any individual a sizable sum of money and/or assets over the course of years, free from both income taxes and estate taxes.
It’s important to note, however, that in any individual year, the IRS puts a cap on the amount a person can receive as a gift without requiring disclosure filings from either party. This is known as an annual gift tax exclusion, and it was $15,000 a year in 2020 and 2021.
If the annual gift tax exclusion is exceeded by any one giver to any one recipient in a calendar year, the amount by which the annual gift tax exclusion is exceeded is deducted from the lifetime gift tax exemption (and estate tax exemption). Exceptions include gifts between spouses and eligible donations to nonprofits and political organizations.
In addition, certain gifts are always exempt, including:
Paying someone’s education tuition, if paid directly to the educational institution (does not cover gifts to cover room and board, books or supplies)
Paying someone’s medical expenses, if paid directly to the medical facility
While a document called Disposition of Remains expresses the person’s preference for burial or cremation, it can also include organ donation and funeral plans, including how they are to be paid for. Payable-on-death bank accounts are often the best way to handle funeral expenses.
Even people with modest assets can benefit from end-of-life planning, which encompasses much more than just writing a last will and testament. It’s really hard to talk about death, and unfortunately, talking about money isn’t much easier for many people. But once they’re gone, having access to organized legal documents can help you avoid stress and financial complications, as well as some of the conflicts among the living that arise out of grief, loss, and unresolved money matters ●
Everything your loved one owned, from their home to their shoes to their dishes to the cash in their wallet, will need to find its way to a new owner. We will guide you to all the various types of assets and how each one should be handled.