By: Betty Berry, Monday, January 18, 2010 Q: My friend and I are trying to get our legal papers in order and are having a disagreement on what paper or papers take precedence over others. She said that a will is the final word while I was always told that other ways of leaving money such as naming a beneficiary would be the form that would be followed.
Can you shed some light?
A: First, congratulations to both of you for putting your legal papers in order. It is so important to have these issues set in print so your assets, when you are gone, go to the person or persons you want to have them.
It is also very important to know which legal form takes precedence; if you don’t, you may end up leaving a particular asset or assets to an unintended person or persons.
To make sure I understood some of the methods of leaving assets, I spent some time with an expert in the field and found the following:
Beneficiaries you designate on life insurance policies, investment accounts such as 40l(k)s and IRAs, and U.S. Savings Bonds will take precedence over those you name in your will.
If you fail to designate a beneficiary or name your estate as the beneficiary of your IRA or life insurance policy, the assets involved will be subject to probate, which is a time-consuming and an expensive legal process.
Naming your trust as the beneficiary of your retirement accounts can be a problem when there are significant differences in the ages of your heirs. If a tax-advantaged retirement plan’s designated beneficiary is your trust, it will affect the method that withdrawals may be made by your heirs.
A transfer or payable-on-death designation is another method of leaving assets. You will find this method is commonly used for investments and bank accounts; it is comparable to joint ownership except that with a transfer or payable-on-death designation, the beneficiary has no control until the owner dies.
Joint ownership is another way to pass on assets, but it does have drawbacks in that the person named as the joint tenant has ownership rights and there is risk if the joint tenant is sued.
Once papers are in place, don’t forget to update beneficiary designations if you divorce, remarry or are widowed.
It is so easy to forget to update these important papers when family status changes. Even if family status doesn’t change, your legal papers should be reviewed every few years to make sure they will do what you intended them to do.
There are many ways to name your heirs, and every family is unique. When doing your estate planning, it is advisable to work with an estate planning attorney to get it right because when the time comes to execute those papers, you won’t be around to say how it should be done.
Q: I just discovered an IRA that I started years ago in another state and forgot about. It is a small amount, but I would like to change the beneficiary. Is this difficult to do?
A: Well what a wonderful surprise to find a lost asset. No, it is not difficult to change a beneficiary. You will need to obtain a Designation of Beneficiary form from the trustee holding your IRA, complete it and return it.
It is suggested that IRA and insurance beneficiaries be checked along with other legal papers on an annual basis to make sure they reflect your current wishes.
Make sure to name both a primary and contingent beneficiary for each IRA and insurance policy you own.
If you name multiple beneficiaries, be sure each beneficiary’s share is clearly defined with a fraction or percentage amount or with the word “equally” if that is appropriate.
Verify that the records on file with your IRA trustee or insurance company agree with your choices. Keep a copy of your beneficiary designations with other important papers and let your family know how to locate them if needed.
— Betty Berry is a senior advocate for Senior Concerns. The advocates are at the Goebel Senior Adult Center, 1385 E. Janss Road, Thousand Oaks, CA 91362; phone 495-6250 or e-mail betty@seniorconcerns.org (please include your telephone number.) You are invited to submit questions on senior issues.
