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August 2020 Newsletter- Beneficiary Planning

August 03, 2020
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Dear First Mates,

Hello everyone! I hope this email finds you well and in good spirits. I have recently conducted a client beneficiary review to ensure I have the correct beneficiaries on file.  So, for this month, I’d like to go through five primary ways you can transfer assets to your loved ones. This is extremely important to understand because of the many real-life horror stories that could have been averted with some simple planning.


If you die without creating a will, you are considered to die intestate. Your assets will transfer to your beneficiaries based on the laws of your state. This is the least desirable outcome since your wishes may not be followed due to a lack of planning. For example, New York State law says that if you die intestate with no family - New York state becomes your beneficiary. The nerve!! 


Probate refers to the legal process in which a will is deemed valid and authentic by a judge. It can also refer to the general administering of a deceased person's estate if they didn't create a will. The executor (or administrator if there’s no will) is appointed by the court to administer the process where an inventory of everything you own is filed with the court and becomes public information. During this process, any remaining debts are settled and assets are distributed to named beneficiaries found in the will.

The major drawbacks of the probate process include the costs associated with it, the length of time to complete it, and that your private information now becomes publicly available. Predators can use this time to target grieving family members so please be aware and on high alert. Finally, it is possible for someone to challenge (or contest) the will. The joke is where there is a will, there are 500 relatives.

Operation of Law

It is common for certain assets to be owned jointly by two or more people – such as a home, bank, or brokerage account. This is referred to as Joint with Rights of Survivorship ("JTWROS"). This type of ownership states that when one owner passes, the assets will automatically transfer to the surviving owner(s). Please note that assets transferring through operation of law supersede the will.   


A trust is a legal vehicle created by an individual (known as the grantor or settlor) that allows a third party, known as the trustee, to hold and direct assets in the trust on behalf of the grantor’s beneficiaries. There are many benefits to using a trust: including avoiding probate, privacy, as a tax shelter, and for asset protection. Why would you need to protect assets? Typically, you want asset protection against creditors, lawsuits, divorce, or even from the beneficiaries themselves.

Trusts are extremely flexible in that you can dictate the terms of an inheritance in both life and death. This is especially true where the beneficiary is underage, disabled, or is incapable of wisely managing their finances. A big mistake is to create a trust with a competent estate planning attorney – only to never fund the trust with specific investments.

Contract (Beneficiary Designations)

Fortunately, many types of property can avoid the probate process all together by operation of contract. This is where you name beneficiaries on specific accounts. Consider naming both primary and contingent beneficiaries in case anything happens to the primary beneficiaries and the accounts were never updated (or in the event of a simultaneous death). You can name beneficiaries on:

-Bank accounts (Payable on death arrangements)

-Brokerage accounts (Transfer on death arrangements)

-Retirement plans (401k’s, 403b’s, IRA’s, Roth IRA’s, Inherited IRA’s, SEP IRA’s, etc.)

-529 Plans

-Life insurance contracts

-Annuity contracts

Please note that named beneficiaries supersedes whoever you list in a will or trust. For example, let’s say you have a Traditional IRA worth $500,000. You established this account many years ago and named your former spouse as 100% primary beneficiary. After getting remarried (G-d bless you), you update your will to name your current spouse but fail to update the IRA beneficiary. Once you pass on, your ex will get the money and there is little your current spouse can do about it. This unfortunate scenario happens many times. Therefore, consider reviewing and updating your beneficiaries annually and at very least after a major life event. Do not assume the beneficiaries are correct. Call the custodian or bank and make sure you are able to view who is listed on file as mistakes can and do happen.

With gratitude,

David Warshaw, CFP®

Click here to view the 2020 Planning Checklist.

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