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Beneficiary Designation Horror Story

Regardless of your income or net worth, there’s one estate planning task you should do right now: check the beneficiary designations for your life insurance policies, bank accounts, brokerage firm accounts, and retirement accounts. You should update these forms as necessary. If you don’t, the consequences can be dire.

MarketWatch’s recent article, “Make this estate planning move right now: Check your beneficiary designations, explains how the Fifth Circuit Court of Appeals reversed the trial court by finding that a pension plan administrator didn’t abuse her discretion in determining that a deceased plan participant’s stepsons weren’t considered his “children” under the terms of the plan. As a result, the deceased participant’s siblings, not his stepsons, were entitled to inherit the plan benefits in Herring v. Campbell (5th Circuit 2012).

Halloween-1746354_640In that case, John Hunter died in 2005. He had retired from Marathon Oil, where he was a participant in the company pension plan, which let him name a primary and secondary beneficiary. Hunter designated his wife as the primary beneficiary but didn’t designate any secondary or “contingent” beneficiary. After his wife died, he didn’t update the document to add a new primary beneficiary. Under the plan’s terms, when a participant died without designating a valid beneficiary, the deceased participant’s benefits were distributed in the following order of priority: (1) surviving spouse, (2) surviving children, (3) surviving parents, (4) surviving brothers and sisters (siblings), and finally (5) participant’s estate.

After he died, the plan administrator rejected the claim that Hunter’s two stepsons would qualify as “children” who’d be entitled to all the benefits. Instead, the plan administrator distributed the benefits of more than $300,000 to Hunter’s six siblings.

The stepsons sued for the benefits, claiming that they were, in fact, Hunter’s children because, by his actions, he’d “equitably adopted” them. The evidence seemed to indicate that he probably did mean to leave his benefits to the stepsons, so the trial court concluded that the plan administrator abused her discretion by failing to consider the stepsons’ equitable adoption claim. But the plan administrator appealed to the Fifth Circuit.

The Fifth Circuit agreed with the administrator’s interpretation that the term “children,” and for purposes of the plan, it meant biological or legally adopted children as opposed to un-adopted stepchildren. The District Court’s decision was reversed, and Hunter’s pension benefits went to his six siblings.

Typically, whoever’s named on the most-recent beneficiary form will get the money automatically, if you die. This brings up another advantage of designating individual beneficiaries—it can help you avoid probate, because the money goes directly to the named beneficiaries by “operation of law.”

Doing a beneficiary checkup and making any needed changes will take just a few minutes. Don’t wait, or it could be too late, like it was for Mr. Hunter’s stepsons.

If you would like to discover more about taking the very important next step in the estate planning process, consider joining us for a free educational workshop.  You can reserve your spot by clicking here now.  Grab a seat today as space is limited.

Reference: MarketWatch (June 30, 2017) “Make this estate planning move right now: Check your beneficiary designations”

 

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When Can I Get the Life Insurance Company to Pay Out the Death Benefit?

A common question in settling the affairs of a loved one, is how long it generally will take after that person dies for the life insurance company to pay out the death benefit.

As a follow-up, what happens if the beneficiary doesn't know about the life insurance policy?

As Kiplinger explains in recent article, “How to Speed Up a Life Insurance Payout,” the more information you have about the life insurance policy, the quicker you can get the payout.

Wallet-2561419_640If you have a copy of the life insurance policy and a copy of the death certificate when you file a claim, it will expedite the process. If you have these items available, it can take as few as five business days after filing the claim to receive the payout.

If the beneficiaries don't have any idea that they are coming into money from the life insurance policy, the insurer may track them down, but not always.

The Social Security Death Master File will usually have deaths reported. Some state laws also require insurers to compare their files against those records and make contact with the beneficiaries when a death is reported. Some insurers will do this voluntarily.

If you believe the deceased had a life insurance policy but don't know the insurer, you might review their financial records and check for canceled checks, and contact any insurers or agents mentioned.

You can also make a request of the National Association of Insurance Commissioners' policy locator service. This service asks many life insurance companies to check their records for the policies.

You can also consult with the American Council of Life Insurers for more tips on locating a policy.

We offer FREE workshops and would love to save you a seat for one that works best for you.  Just click here and register and we'll see you there!

Jeff Bellomo

Reference: Kiplinger (June 7, 2017) “How to Speed Up a Life Insurance Payout”

 

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Simple Estate Planning Tools

Old couple with computerWhen we look at the steps taken in our investing lives, the basics are simple. As working investors in the initial stages, the priority is accumulation and growth. Therefore, we participate in retirement plans such as IRA’s, 401-k plans, etc.

As Marco Eagle’s article, “Money Talks: Estate planning tools” explains, the next phase is the retirement stage, when the focus shifts from accumulation to preservation and maintenance of the nest egg.

Growth is a component of any retirement plan, but protecting your purchasing power during retirement is critical. You also want to generate a predictable stream of income during retirement, in order to avoid compromising your lifestyle.

The final stage of successful retirement planning is often overlooked: that’s the estate planning phase or the strategy of a succession plan to pass assets to your family. There are many estate planning tools that can be used to execute an estate plan. You can create a personal trust. Under this arrangement, your assets are transferred into a trust during your lifetime and then transferred by the trust at death. It’s important from both a tax standpoint and an allocation standpoint, regarding who receives what and how much. This is what your estate plan does for you and your family.

Work with an experienced estate and trusts attorney to establish your estate plan, so you can achieve your final objectives when passing assets to the next generation. Some individuals like the ability to exercise control with an effective plan to pass assets to their beneficiaries, without the need of trusts or probate.

There are many types of insured annuity strategies that will pass assets immediately to the beneficiaries, without the need of probate. Avoiding probate is frequently part of a strategy to make the assets available, immediately after the death certificate is issued.

Some see the foundation of their estate planning as the incorporation of life insurance. This lets the beneficiaries inherit assets, generally tax free. Avoiding a taxable event upon death is also appealing, based on both taxes as well as overall portfolio values. Talk to a professional about your situation.

Reference: Marco Eagle (June 11, 2017) “Money Talks: Estate planning tools”

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Review These Retirement Planning Criteria

401k piggy bankStock Investor’s recent article, “6 Retirement Estate Planning Criteria You Must Address,” says every retiree’s investment objective should address these six criteria:

  1. Minimum required yield. This is the first factor when looking for reliable long term income. It is calculated based on household income requirements and investable assets—typically IRAs, taxable brokerage accounts and other savings that are planned for retirement income. When the required percent of investment (portfolio yield) increases, so does the income risk. When the yield is too high to be practical, traditional thought says to liquidate some of your principal by gradually drawing down your investment portfolio over retirement years or by using an insurance product like a single premium immediate annuity.
  2. Income Reliability. This means the income, just like a paycheck, will be there regularly and will have a low risk of fluctuation—and an even lower risk of being reduced or eliminated.
  3. Income growth that keeps up with inflation. This can come from the investments organically growing their dividends over the years or from the excess income the actual investments produce that are accumulated and used to supplement future household income with inflation.
  4. Liquidity. This is the ease with which investment securities can be converted into cash. This will be a high priority, if you think a need could arise that would require an unplanned tap into the principal of the investment portfolio.
  5. Future capital preservation of the investment principal. Conventional wisdom says that retirement savings will be consumed and the savings will decumulate. Capital preservation is a priority, if you want to maintain the investment capital to meet future possible household major expenses—like assisted living costs or creating a testamentary special needs trust (a trust created at your death in your estate) to provide for a disabled child or grandchild, to provide for a grandchild’s college expenses or to donate a favorite charity.
  6. Simple transfer to the surviving spouse. In many instances, a spousal retirement account has just one person who builds, monitors, and manages the portfolio. Therefore, it’s important to have an easy transition for the surviving spouse to continue the management of the income portfolio.

Reference: Stock Investor (May 24, 2017) “6 Retirement Estate Planning Criteria You Must Address”

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Check on Your Beneficiaries…Today!

Fortune cookie inheritanceWhen you pass away, what you leave to your loved ones is important, but so too is how you leave those assets. Making certain that you leave the right assets to the right beneficiaries, is a critical element of effective estate planning.

Forbes’ recent article, “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries,” examines several common asset types and considerations to be taken when naming beneficiaries.

Life insurance. These proceeds can be paid to the beneficiaries quickly. After proof of death is established, the funds are paid. Think about heirs who may need ready access to funds after you pass. That’s usually not a minor child. However, if you do name a child, you must designate a guardian or place the proceeds in trust. Otherwise, the state may take control and assign a stranger to manage the money on your child’s behalf.

Assets in a Will. When you pass away, your will is going to be probated, and the assets can’t be distributed until the probate process is complete. Because of this, be sure the beneficiary of any property or assets specified in the will is in a position to wait. You can also create a revocable living trust to hold those assets, so a trustee can distribute assets directly to beneficiaries without waiting to go through probate.

Retirement plans. When you select the beneficiaries for retirement plans, remember that it can result in tax implications. The younger the recipient, the longer their life expectancy, and the more time they will have to withdraw funds from the plans. That means the account can continue to grow tax-deferred. You can also name a trust as the beneficiary of a retirement plan, and the assets in the trust will be protected from creditors. A retirement plan inherited outside of a trust may not enjoy this protection. In addition, if a beneficiary is young, the trustee can make distributions under conditions that you state when you create the trust.

Last, be certain the beneficiaries named in your retirement and other financial accounts are consistent with your estate plan. A beneficiary designation of your 401(k) plan supersedes anything in your will.

Reference: Forbes (May 30, 2017) “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries”

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