Co-ordinated Asset Titling and
Beneficiary Designations are Key to Success

A well crafted estate plan absolutely must involve a very close look at two things (1) the manner in which assets are titled, and (2) the beneficiary designations on file with the plan administrator of a 401k plan or custodian of an IRA. Without a very close look and analysis of how assets are titled and how beneficiary designations will work, an otherwise good estate plan can become completely derailed. How?

If assets are not titled properly, then the trust designed to shelter assets from the estate tax can possibly never be funded. This trust is often referred to as the credit shelter trust, or the bypass trust or the family trust. The result can be a substantial amount of estate taxes due. Let’s say for instance, Max and Sue are married and Max and Sue own all their assets (other than IRA’s and life insurance) jointly including their house and their brokerage accounts. Max and Sue get an estate plan put together and use revocable trusts, at their attorney’s direction, so that probate will be avoided. The only problem is that all of their assets are owned jointly. Under this form of ownership, the revocable trust does not apply when first of them passes. Why? Because by operation of law, the survivor becomes full owner of the house and the brokerage accounts. Result? The trust designed to shelter assets from the estate tax is not funded. Result? When survivor passes, all of the assets, and I mean all of the assets are included in the taxable estate of the survivor and exposed to the federal estate tax. Result? Before assets go to the kids, the survivor’s estate will owe the federal government a lot of money. That is NOT a good result. Now, as this article goes to print, there is no federal estate tax. We are currently in a little limbo regarding that, but we will almost definitely have an estate tax and if your affairs are not in order, the tax bite can hurt.

If the beneficiary designation does not work with the estate plan, the results can be disastrous. How? Well, first thing for you to understand is that the beneficiary designation is akin to your will for your retirement assets and your life insurance. If it is not working with / dovetailing with your estate plan, then the trust designed to shelter assets from the estate tax is not funded. Result? On the survivor’s passing, a lot of estate taxes that could have been avoided are due. How soon to the taxes need to be paid? They have to be paid within 9 months unless you can make an installment arrangement with the IRS.

If yours is a case where it is anticipated that even with good basic planning, there will be estate taxes due, then it is advisable to consider buying life insurance so family real estate does not need to be fire-saled to pay the federal government. The best way to own life insurance is not to own it at all. This means that you create an irrevocable trust and have the trustee (which can be your child) own the policy in their capacity as trustee. If this is all managed correctly and premiums are paid through gifts you make to the trustee, then you can provide the necessary liquidity to pay the taxes that may be due. Every case is unique.

These matters are best addressed with an attorney who only engages in this kind of work and who has achieved advanced credentials in this field. Membership in organizations can be misleading. Often, the only thing necessary to be a member of an organization is an annual fee paid by its members and that they have good credit. You see, these organizations are often just a sort of legal franchise operation. Beware of that. Make your own judgments. Obtaining an advanced degree from an accredited University in Estate Planning or obtaining actual “specialist” status from the Supreme Court is the best indication of fitness as an estate planning attorney. The security of your family property depends on it.

Contributed by
Mark F. Winn, J.D., LL.M. in Estate Planning, who is a local tax, asset protection and estate planning attorney.