When a loved one dies, the surviving family members who are grieving the loss can face the additional burden of a complicated estate-administration process if key documents aren’t in place or if they are incomplete or outdated.
One of the most important details on all your important financial documents is your beneficiary designation. A beneficiary needs to be listed on all accounts and estate-planning documents, including your will, your 401(k) retirement account, checking and savings accounts, life insurance policies, pensions, IRAs and annuities. When you purchase property, open a bank account or take out an insurance policy, you will probably fill out a form to name the beneficiary for each account, property or policy.
The beneficiary you name should be the same on all your documents. When naming a beneficiary, be sure to include that person’s birth date and Social Security number.
Beneficiary designations are a critical part of any estate plan because they specify who will receive what upon your death. Be sure to name both a beneficiary and a backup or contingent beneficiary. Estate planning is important for everyone — everyone has an estate! We especially encourage brand-new parents to work with us to develop an estate plan.
Missing or conflicting beneficiary details can cause problems for survivors
Sometimes, when we begin working with new clients, we discover that they have not listed any beneficiaries on some of their accounts. The reasons vary. For example, someone might open an individual brokerage account so they can receive an inheritance, intending to create a trust and move that money into it — but never do so.
What we see more often, though, is that people have different beneficiaries listed on different documents. One of the first things we do when working with new clients is to update beneficiaries’ names and other information and make sure these details match on all documents. We also make sure to update beneficiary details when a client experiences life changes in the family, such as a birth, a death, a marriage or a divorce.
It’s important to know that beneficiary designations on your individual accounts will typically override beneficiary designations in your will. For example, if you have listed a different beneficiary on a qualified retirement account than on your will, the beneficiary named on your account will supersede the will.
What happens if you die without a will
In cases where someone dies intestate (without a will), the deceased person’s estate will be distributed according to the laws of the state he or she lived in — “intestate succession laws.” The surviving spouse and children are usually considered to be the primary inheritors, followed by other close relatives like parents and siblings, if applicable. When someone dies without a will, the court will decide how to distribute the individual’s assets.
Probate is the general process of administering the estate of a deceased person who did not have a will. An administrator is typically named to complete the probate process, which involves collecting the deceased’s assets to pay any remaining debts on the estate and distributing any assets to beneficiaries. Probate can also take place even when a deceased person had a will — for example, if the estate is of high value.
Probate can be a long, frustrating and costly process. The more planning you do, the less likely your surviving family members are to have to go through it.
Things can get complicated when the proper documents, and the proper details, aren’t in place.
When it comes to retirement benefits, there are different rules for married and unmarried account holders. If you’re married, your spouse will most likely receive your assets. If you’re not married, your retirement account will likely be paid to your probate estate upon your death. If that happens, the beneficiary named on your retirement plan is required to withdraw all the money within 10 years. If that person fails to do so, he or she might have to pay a 50 percent excise tax on the remaining balance.
As for life insurance, any proceeds that remain upon your death will typically be paid to your probate estate. This means your family will probably have to hire a lawyer, go to court and probate your estate to claim the proceeds.
The “small estate affidavit” — for settling small estates
However, if a deceased person’s estate is modest, the survivors can often settle the estate without having to go to probate by using what’s called a “small estate affidavit.” Small estate affidavits are permitted in many states, with the estate’s value cap varying by state. For example, in Wisconsin, where our office is located, the small-estate affidavit limit is $50,000. This means that a Transfer by Affidavit can be used to transfer property valued under $50,000. This is the limit in quite a few states.
In many cases, the person who files a small estate affidavit can be required to wait for a certain amount of time before submitting the form. This is also based on state law and is two months in some states.
This process allows heirs to claim assets of a deceased family member in days or weeks instead of the months or years it can take for an estate to go through the probate process. Using a small estate affidavit can cost very little or even nothing, while probate fees can take a significant cut from an estate’s value.
We are here to help
Are your estate-planning documents up-to-date? Do you have the same beneficiary listed on all of them, with current details? If not, please make this a priority! We are happy to help you make sure all your documents are in order and up-to-date. Please contact us if you have any questions about beneficiaries or other important financial topics.
