Not long ago I met with a client whose father had recently passed. I asked if his father left a will, which in fact he had. I then asked whether the father had any assets to speak of. My client responded that his father did not have much in the way of assets because he had used the beneficiary designations on all of his cash accounts, designating that the children would receive the money in equal shares–very typical. My client went on to state that really the only asset left in the estate was dad’s house of which he hadn’t lived in for over a year, having been admitted to an assisted living facility.
I share this scenario with you because it is one often told to me by my clients. One will often read or be told something to the effect of “you need to make sure to use your beneficiary designations so that you assets do not have to go through probate.” Beneficiary designations (Pay on Death for bank accounts) can be very useful estate planning tools if managed correctly. However there are instances where use of the designations can create an issue for the heirs/beneficiaries.
Part 2 of the Story:
The client I spoke of had 3 siblings. My client, as is often the case, was the sibling who took care of dad, paid the bills and managed the overall affairs of Dad’s assets and health in his final years and days. When dad died leaving only the house in the estate, my client had a decision to make: “Who will pay for the funeral expenses and who will pay for the costs to update the house, continue to pay the insurance and other bills to maintain the house until such time as it would be sold?” The logical answer is that my client and his siblings should pay their fair share, given that each of them just received a nice sum of money outright through the beneficiary designations.
Simple. Right? Of course not.
As is often the case in these situations, the other siblings may not feel an obligation to help out. They may flat out deny my client’s request that they all share in the responsibility of these costs; and while my client could front the money and recoup it off the top of the sale of the house, why should he be forced to do so but for the shun of responsibility by his siblings.
In this particular case it would have made sense for dad to leave some manner of cash assets in his estate (instead of transferring it all by beneficiary designations) so that the appointed executor (my client) could use the money to wind up the affairs of the estate (i.e. funeral expenses and maintenance, repairs and bills for the house). Once the house was sold, the net proceeds could then be distributed to the siblings as called for under the will.
Moral of the story: In planning for your estate, be sure to consider the collateral results that may occur based on your decisions and the estate planning tools you use. What saves you and your heirs in one area may be costly in another. Take your time. Speak with an estate planning attorney and consider all options and outcomes.
0 Responses to “Beneficiary Designations: Good Estate Planning?”