Paul O. Dillon, Attorney at Law

Why Your Will Is Just One Part of an Estate Plan

When a veterinarian’s third wife left him, he rushed to update his will and estate planning documents to ensure that she wouldn’t get anything when he died. However, the handwritten change he faxed to his life insurance company wasn’t accepted, so his three children from his first marriage spent six years embroiled in a fight with her after he died.

Most people make the mistake of assuming their will is the last word on who receives what when they die, according to a recent article, “Your Will Alone Won’t Guarantee Your Money Goes to Your Heirs,” from The Wall Street Journal. However, certain documents override wills, and chances are you’ve got more than a few: beneficiary forms for retirement accounts, life insurance and some bank and investment accounts. This is the case regardless of whether the accounts were opened through the workplace or on your own.

Failure to update them and your assets could end up in an ex-spouse’s accounts or a court battle. Estate planning attorneys say this is a growing issue as Americans juggle multiple accounts and have more of their net worth in retirement accounts.

You must be sure that all beneficiary forms match your current intent and estate plan. For one employee benefits attorney, the hardest part of the job is writing denial letters to children and parents, advising them they are not entitled to the accounts.

Some laws regarding pensions and spouses need to be explored and clarified. For example, an employee divorces and names an adult child as the new 401(k) beneficiary. The employee then remarries. Under federal law, the new spouse gets the 401(k), no matter what the beneficiary form or will says. The rules vary for beneficiary forms for different accounts, so each needs to be examined.

With 401(k)s, married spouses are automatically entitled to the money unless they formally waive it, and the waiver must be notarized. If no beneficiary and spouse are listed, the employer plan documents determine who is next in line.

With IRAs, in most states, you can name someone other than your spouse as a beneficiary without needing a waiver. You will need a waiver if you live in a community property state, like California or Texas. If no beneficiary is listed, the terms of the IRA agreement determine who inherits the IRA.

With insurance payouts, the employer plan documents control the payout, if the policy is a workplace plan obtained through your employer. If you purchased the policy independently, the insurance company’s rules govern. Litigation typically ends up in state court.

Want to protect your heirs?

Take beneficiary forms seriously, and don’t just sign and forget them. Be sure to include the beneficiaries’ proper name, date of birth and Social Security number.

Keep the documents updated according to the institution's guidelines anytime there is a major life event, like getting married, divorced, or having children. Some states have laws automatically revoking designation upon divorce, but many do not.

For banks and investment accounts, people sometimes add a “payable on death” designation by filling out a special beneficiary form and then forget about it. If one child is named and not the other, this can lead to hurt feelings and fractured relationships.

These accounts and insurance policies must be aligned with your overall estate plan, or they may not work as you want.

Keep copies of beneficiary forms with your estate planning documents. You may want to send duplicate beneficiary forms to the bank, brokerage house, or insurance company and ask for one back with a stamp indicating it was received. You can sometimes check your account profile online to see if the change you requested has been made.

Reference: The Wall Street Journal (Sep. 30, 2023) “Your Will Alone Won’t Guarantee Your Money Goes to Your Heirs”

What Is a ‘Residuary’ Estate?

This is also known as estate residue or residual estate. It simply means the assets left over after a will has been read, assets have been distributed to heirs and any final expenses have been paid. An estate planning attorney can help avoid leaving residual assets behind, with a comprehensive estate plan, reports a recent article titled “How to Write a Residuary Estate Clause in a Will” from yahoo!

A will is a legal document used to name guardians for minor children and providing directions for how you want assets to be distributed when you pass. Any assets not included in your will or distributed through a trust automatically become part of the residuary estate on your death.

This can happen deliberately or unintentionally. For example, your will can state your wishes to have certain assets left to certain people. However, your will could also include a residual estate clause explaining what should happen to any assets not already named in the will. In this case, you’re intentionally creating a residual estate, and planning for it at the time of the will’s creation.

Some residual estates are created without advance planning. Here’s how that happens:

• If you forget to include assets in your will.
• If you acquired new assets after drafting a will and do not add a codicil making provision for the distribution of the assets.
• Someone named in the will dies before you or is unable to receive the inheritance you left for them.

This can also happen if you set up a Payable On Death (POD) account but neglect to add a beneficiary to the account. Any funds in the account would be lumped into the residual estate.

What happens if you draft a will and don’t have a residuary estate clause? Any unclaimed or overlooked assets will be distributed, according to your state’s inheritance guidelines. However, this is only done after any estate taxes, outstanding debts or final expenses have been paid. Assets would be distributed as if you did not have a will. Heirs at law would receive assets according to kinship, including spouse, children, parents, siblings and other relatives.

How does a trust work in relation to a residual estate? Trusts are legal entities allowing you to transfer assets to a trustee. The trustee is responsible for managing assets on behalf of the trust for beneficiaries according to your wishes. You may want to establish a trust if you have a substantial estate, want to plan for a family member with special needs or if you wish to create a charitable giving legacy.

Speak with an experienced estate planning attorney to determine whether your will should have a residual clause and what assets should be included. The estate planning attorney will also be able to determine whether you need additional estate planning strategies, including a revocable living trust.

Reference: yahoo! (Dec. 4, 2022) “How to Write a Residuary Estate Clause in a Will”

Can You Plan for Probate?

What can you do to help heirs have a smooth transition when settling your estate? A recent article from The Community Voice, “Managing probate when setting up your estate,” provides some recommendations.

Joint accounts. Married couples can own property as joint tenancy, which includes a right of survivorship. When one of the spouses dies, the other becomes the owner and the asset doesn’t have to go through probate. In some states, this is called tenancy by the entirety, in which married spouses each own an undivided interest in the whole property with the right of survivorship. They need content from the other spouse to transfer their ownership interest in the property. Some states allow community property with right of survivorship.

There are some vulnerabilities to joint ownership. A potential heir could claim the account is not a “true” joint account, but a “convenience” account whereby the second account owner was added solely for financial expediency. The joint account arrangement with right of survivorship may also not align with the estate plan.

Payment on Death (POD) and Transfer on Death (TOD) accounts. These types of accounts allow for easy transfer of bank accounts and securities. If the original owner lives, the named beneficiary has no right to claim account funds. When the original owner dies, all the named beneficiary need do is bring proper identification and proof of the owner’s death to claim the assets. This also needs to align with the estate plan to ensure that it achieves the testator’s wishes.

Gifting strategies. In 2022, taxpayers may gift up to $16,000 to as many people as you wish before owing taxes. This is a straight-forward way to reduce the taxable estate. Gifts over $ 16,000 may be subject to federal gift tax and count against your lifetime gift tax exclusion. The lifetime individual gift tax exemption is currently at $12.06 million, although few Americans need worry about this level.

Revocable living trusts. Trusts are used to take assets out of the taxable estate and place them in a separate legal entity having specific directions for asset distributions. A living trust, established during your lifetime, can hold whatever assets you want. A “pour-over will” may be used to add additional assets to the trust at death, although the assets “poured over” into the trust at death are still subject to probate.

The trust owns the assets. However, with a revocable living trust, the grantor (the person who created the trust) has full control of the assets. When the grantor dies, the trust becomes an irrevocable trust and assets are distributed by a successor trustee without being probated. This provides privacy and saves on court costs.

Trusts are not for do-it-yourselfers. An experienced estate planning attorney is needed to create the trust and ensure that it follows complex tax rules and regulations.

Reference: The Community Voice (Nov. 11, 2022) “Managing probate when setting up your estate”

Top Five Estate Planning Mistakes

Everyone should have an estate plan, whether it’s a simple will or a detailed and complex one with trusts and strategies for multiple generations. The more care and thought put into the plan, says a recent article, “5 Common Estate Planning Mistakes to Avoid” from Kiplinger, the better the outcome. There are some common mistakes you can avoid with a little foreknowledge.

Failing to plan for incapacity. People think about creating wills and trusts with their mortality in mind. However, incapacity planning is just as important, in some cases, more important, than death. A good estate plan identifies the people authorized to make important decisions on your behalf concerning finances, health care and other important issues. It also empowers them to do so with powers of attorney. Once you are unconscious or otherwise incapacitated, you can no longer legally assign someone else to act on your behalf. Preparing for others to make decisions for you should not be overlooked.

Neglecting funeral and burial wishes. If you were kind enough to purchase a burial plot and make funeral plans, don’t make your children have to conduct a scavenger hunt. Talk with them about it and tell them where they can find the deed to your plot and the contract with the funeral home. Name a point person who will be in charge of the funeral and burial arrangements and make sure they know your wishes. If you want to be cremated, make it clear to loved ones. The more information you share before your death, the more likely your wishes will be followed.

Not considering the tax implications of transferring property. Don’t leave your loved ones a huge tax bill. It may seem generous to gift property to heirs during your lifetime. However, in many instances, giving when you have passed will create a far smaller tax burden. Your estate planning attorney will work with you to determine how to minimize taxes and maximize your gifts.

Name back-ups for key decision makers. The unthinkable happens. Spouses perish in the same accidents. If no secondary beneficiary has been named, who inherits the estate? Name additional and alternative beneficiaries in case of unfortunate occurrences. You should name a backup executor, financial power of attorney and health care agent. If a person named in your estate documents cannot fulfill their role because of death, incapacity or other reason, the court will name substitutes.

Forgetting to clarify and update beneficiary designations. If your will says you want all of your children to get an equal share of your estate, but one child is on a joint investment account and another is on a Payable Upon Death checking account, you’ve created potential disputes. It’s important to list out the beneficiaries, their asset shares and create a directive to your bank to set the interests in your accounts upon your death. Your bank may require you to change how accounts are titled to achieve your goals. Therefore, you should take care of this while you are living, so you can make any needed changes.

Reference: Kiplinger (Oct. 20, 2022) “5 Common Estate Planning Mistakes to Avoid”

Short-Cuts to Estate Planning can Lead to Costly Consequences

It seems like a simple way for the children to manage mom’s finances: add the grown children as owners to a bank account, brokerage account or make them joint owners of the home. However, these short-cut methods create all kinds of problems for the parent’s estate and the children themselves, says the article entitled “Estate planning: When you take the lazy way out, someone will pay the price” from Florida Today.

By adding an adult child as owner to the account, the child is being given 50% ownership. The same is true if the child is added to the title for the home as joint owner. If there is more than $30,000 in the account or if the asset is valued at more than $30,000, then the mother needs to file a gift tax return—even if no gift tax is due. If the gift tax return is not filed in a timely manner, there might be a gift tax due in the future.

There is also a carryover basis in the account or property when the adult child is added as an owner. If it’s a bank account, the primary issue is the gift tax return. However, if the asset is a brokerage account or the parent’s primary residence, then the child steps into the parent’s shoes for 50% of the amount they bought the property for originally.

Here is an example: let’s say a parent is in her 80s and you are seeing that she is starting to slow down. You decide to take an easy route and have her add you to her bank account, brokerage account and the deed (or title) to the family home. If she becomes incapacitated or dies, you’ll own everything and you can make all the necessary decisions, including selling the house and using the funds for funeral expenses. It sounds easy and inexpensive, doesn’t it? It may be easy, but it’s not inexpensive.

Sadly, your mom dies. You need some cash to pay her final medical bills, cover the house expenses and maybe a few of your own bills. You sell some stock. After all, you own the account. It’s then time to file a tax return for the year when you sold the stock. When reporting the stock sale, your basis in the stock is 50% step-up in value based on the value of the stock the day that your mom died, plus 50% of what she originally paid for the stock.

If your mom bought the stock for $100 twenty years ago, and the stock is now worth $10,500, when you were added to the account, you now step into her shoes for 50% of the stock—$50. You sold the stock after she died, so your basis in that stock is now $5,050—that’s $5,000 value of stock when she died plus $50: 50% of the original purchase. Your taxable gain is $5,450.

How do you avoid this? If the ownership of the brokerage account remained solely with your mother, but you were a Payable on Death (POD) or Transfer on Death (TOD) beneficiary, you would not have access to the account if your mom became incapacitated and had appointed you as her “attorney in fact” on her general durable power of attorney. What would be the result? You would get a step-up in basis on the asset after she died. The inherited stock would have a basis of $10,000 and the taxable gain would be $500, not $5,450.

A better alternative—talk with an estate planning attorney to create a will, a revocable trust, a general durable power of attorney and the other legal documents used to transfer assets and minimize taxes. The estate planning attorney will be able to create a way for you to get access or transfer the property without negative tax consequences.

Reference: Florida Today (May 20, 2021) , “Estate planning: When you take the lazy way out, someone will pay the price”

What You Should Never, Ever, Include in Your Will

A last will and testament is a straightforward estate planning tool, used to determine the beneficiaries of your assets when you die, and, if you have minor children, nominating a guardian who will raise your children. Wills can be very specific but can’t enforce all of your wishes. For example, if you want to leave your niece your car, but only if she uses it to attend college classes, there won’t be a way to enforce those terms in a will, says the article “Things you should never put in your will” from MSN Money.

If you have certain terms you want met by beneficiaries, your best bet is to use a trust, where you can state the terms under which your beneficiaries will receive distributions or assets.

Leaving things out of your will can actually benefit your heirs, because in most cases, they will get their inheritance faster. Here’s why: when you die, your will must be validated in a court of law before any property is distributed. The process, called probate, takes a certain amount of time, and if there are issues, it might be delayed. If someone challenges the will, it can take even longer.

However, property that is in a trust or in payable-on-death (POD) titled accounts pass directly to your beneficiaries outside of a will.

Don’t put any property or assets in a will that you don’t own outright. If you own any property jointly, upon your death the other owner will become the sole owner. This is usually done by married couples in community property states.

A trust may be the solution for more control. When you put assets in a trust, title is held by the trust. Property that is titled as owned by the trust becomes subject to the rules of the trust and is completely separate from the will. Since the trust operates independently, it is very important to make sure the property you want to be held by the trust is titled properly and to not include anything in your will that is owned by the trust.

Certain assets are paid out to beneficiaries because they feature a beneficiary designation. They also should not be mentioned in the will. You should check to ensure that your beneficiary designations are up to date every few years, so the right people will own these assets upon your death.

Here are a few accounts that are typically passed through beneficiary designations:

• Bank accounts
• Investments and brokerage accounts
• Life insurance polices
• Retirement accounts and pension plans.

Another way to pass property outside of the will, is to own it jointly. If you and a sibling co-own stocks in a jointly owned brokerage account and you die, your sibling will continue to own the account and its investments. This is known as joint tenancy with rights of survivorship.

Business interests can pass through a will, but that is not your best option. An estate planning attorney can help you create a succession plan that will take the business out of your personal estate and create a far more efficient way to pass the business along to family members, if that is your intent. If a partner or other owners will be taking on your share of the business after death, an estate planning attorney can be instrumental in creating that plan.

Funeral instructions don’t belong in a will. Family members may not get to see that information until long after the funeral. You may want to create a letter of instruction, a less formal document that can be used to relay these details.

Your account numbers, including passwords and usernames for online accounts, do not belong in a will. Remember a will becomes a public document, so anything you don’t want the general public to know after you have passed should not be in your will.

Reference: MSN Money (Dec. 8, 2020) “Things you should never put in your will”

What Must Be Done when a Loved One Dies?

When a member of a family dies, it falls to the people left behind to pick up the pieces. Someone has to find out if the person left a last will, get the bills paid, stop Social Security or other automatic payments and file final tax returns. This is a hard time, but these tasks are among many that need to be done, according to the article “How to manage a loved one’s finances after they die” from Business Insider.

This year, more families than usual are faced with the challenge of taking care of the business of a loved one’s life while grieving a loss. When death comes suddenly, there isn’t always time to prepare.

The first step is to determine who will be in charge. If there is a will, then it contains the name of the person selected to be the executor. When a married person dies, usually the surviving spouse has been named as the executor. Otherwise, the family will need to work together to pick one person, usually the one who lives closest to the person who died. That person may need to keep an eye on the house and obtain documents, so proximity is a plus. In a perfect world, the person would have an estate plan, so these decisions would have been made in advance.

Don’t procrastinate. It is hard, but time is an issue. After the funeral and mourning period, it’s time to get to work. Obtain death certificates, and make sure to get enough certified copies—most people get ten or twelve. They’ll be needed for banks, brokerage houses and utility service providers. You’ll also need death certificates for taking control of some digital assets, like the person’s Facebook page.

The first agency to notify is Social Security. If there are other recurring payments, like VA benefits or a pension, those organizations also need to be notified. Contact banks, insurance companie, and financial advisors.

Get the person’s credit cards into your possession and call the credit card companies immediately. Fraud on the deceased is common. Scammers look at death notices and then go onto the dark web to find the person’s Social Security number, credit card and other personal identification info. The sooner the cards are shut down, the better.

Physical assets need to be secured. Locks on a house may be changed to prevent relatives or strangers from walking into the house and taking out property. Remove any possessions that are of value, both sentimental or financial. You should also take a complete inventory of what is in the house. Take pictures of everything and be prepared to keep the house well-maintained. If there are tenants or housemates, make arrangements to get them out of the house as soon as possible.

Accounts with beneficiaries are distributed directly to those beneficiaries, like payable-on-death (POD) accounts, 401(k)s, joint bank accounts and real property held in joint tenancy. The executor’s role is to notify the institutions of the death, but not to distribute funds to beneficiaries.

The executor must also file a final tax return. The final federal tax return is due on April 15 of the year after death. Any taxes that weren’t filed for any prior years, also need to be completed.

This is a big job, which is made harder by grief. Your estate planning attorney may have some suggestions for who might be qualified to help you. An attorney or a fiduciary will take a fee, either based on an hourly rate for services performed or a percentage of the entire value of the estate. If no one in the family is able to manage the tasks, it may be worth the investment.

Reference: Business Insider (May 2, 2020) “How to manage a loved one’s finances after they die”

Surprising Ways Beneficiary Designations Can Damage an Estate Plan

Naming a beneficiary on a non-retirement account can result in an unintended consequence—it can even topple an entire estate plan—reports The National Law Review in the article “Overuse of Beneficiary Designations: How They Can Derail a Client’s Estate Plan.” How is that possible?

In most cases, retirement accounts and life insurance policies pass to beneficiaries as a result of the beneficiary designation form that is completed when someone opens a retirement account or purchases a life insurance plan. Most people don’t even think about those designations again, until they embark on the estate planning process, when they are reviewed.

The beneficiary designations are carefully tailored to allow the asset to pass through to the heir, often via trusts that have been created to achieve a variety of benefits. The use of beneficiary designations also allows the asset to remain outside of the estate, avoiding probate after death.

Apart from the beneficiary designations on retirement accounts and life insurance policies, beneficiary designations are also available through checking and savings accounts, CDs, U.S. Savings Bonds or investment accounts. The problem occurs when these assets are not considered during the estate planning process, potentially defeating the tax planning and distribution plans created.

The most common way this happens, is when a well-meaning bank employee or financial advisor asks if the person would like to name a beneficiary and explains to the account holder how it will help their heirs avoid probate. However, if the estate planning lawyer, whose goal is to plan for the entire estate, is not informed of these beneficiary designations, there could be repercussions. Some of the unintended consequences include:

Loss of tax saving strategies. If the estate plan uses funding formulas to optimize tax savings by way of a credit shelter trust, marital trust or generation-skipping trust, the assets are not available to fund the trusts and the tax planning strategy may not work as intended.

Unintentional beneficiary exclusion. If all or a large portion of the assets pass directly to the beneficiaries, there may not be enough assets to satisfy bequests to other individuals or trust funds created by the estate plan.

Loss of creditor protection/asset management. Many estate plans are created with trusts intended to protect assets against creditor claims or to provide asset management for a beneficiary. If the assets pass directly to heirs, any protection created by the estate plan is lost.

Estate administration issues. If a large portion of the assets pass to beneficiaries directly, the administration of the estate—that means taxes, debts, and expenses—may be complicated by a lack of funds under the control of the executor and/or the fiduciary. If estate tax is due, the beneficiary of an account may be held liable for paying the proportionate share of any taxes.

Before adding a beneficiary designation to a non-retirement account, or changing a bank account to a POD (Payable on Death), speak with your estate planning attorney to ensure that the plan you put into place will work if you make these changes. When you review your estate plan, review beneficiary designations. The wrong step here could have a major impact for your heirs.

Reference: The National Law Review (Feb. 28, 2020) “Overuse of Beneficiary Designations: How They Can Derail a Client’s Estate Plan”

Estate Planning for Unmarried Couples

For some couples, getting married just doesn’t feel necessary. However, they don’t enjoy the automatic legal rights and protections that legally wed spouses do, especially when it comes to death. There are many spousal rights that come with a marriage certificate, reports CNBC in the article “Here’s what happens to your partner if you’re not married and you die.” Without the benefit of marriage, extra planning is necessary to protect each other.

Taxes are a non-starter. There’s no federal or state income tax form that will permit a non-married couple to file jointly. If one of the couple’s employers is the source of health insurance for both, the amount that the company contributes is taxable to the employee. A spouse doesn’t have to pay taxes on health insurance.

More important, however, is what happens when one of the partners dies or becomes incapacitated. A number of documents need to be created, so should one become incapacitated, the other is able to act on their behalf. Preparations also need to be made, so the surviving partner is protected and can manage the deceased’s estate.

In order to be prepared, an estate plan is necessary. Creating a plan for what happens to you and your estate is critical for unmarried couples who want their commitment to each other to be protected at death. The general default for a married couple is that everything goes to the surviving spouse. However, for unmarried couples, the default may be a sibling, children, parents or other relatives. It won’t be the unmarried partner.

This is especially true, if a person dies with no will. The courts in the state of residence will decide who gets what, depending upon the law of that state. If there are multiple heirs who have conflicting interests, it could become nasty—and expensive.

However, a will isn’t all that is needed.

Most tax-advantaged accounts—Roth IRAs, traditional IRAs, 401(k) plans, etc.—have beneficiaries named. That person receives the assets upon death of the owner. The same is true for investment accounts, annuities, life insurance and any financial product that has a beneficiary named. The beneficiary receives the asset, regardless of what is in the will. Therefore, checking beneficiaries need to be part of the estate plan.

Checking, savings and investment accounts that are in both partner’s names will become the property of the surviving person, but accounts with only one person’s name on them will not. A Transfer on Death (TOD) or Payable on Death (POD) designation should be added to any single-name accounts.

Unmarried couples who own a home together need to check how the deed is titled, regardless who is on the mortgage. The legal owner is the person whose name is on the deed. If the house is only in one person’s name, it won’t become part of the estate. Change the deed so both names are on the deed with rights of survivorship, so both are entitled to assume full ownership upon the death of the other.

To prepare for incapacity, an estate planning attorney can help create a durable power of attorney for health care, so partners will be able to make medical decisions on each other’s behalf. A living will should also be created for both people, which states wishes for end of life decisions. For financial matters, a durable power of attorney will allow each partner to have control over each other’s financial affairs.

It takes a little extra planning for unmarried couples, but the peace of mind that comes from knowing that you have prepared to care for each other, until death do you part, is priceless.

Reference: CNBC (Dec. 16, 2019) “Here’s what happens to your partner if you’re not married and you die”

How Can Beneficiary Designations Wreck My Estate Plan?

It’s not uncommon for the intent of an individual’s will and trust to be overridden by beneficiary designations that weren’t chosen carefully.

Some people think that naming a beneficiary should be a simple job, and they try to do it themselves. Others don’t want to bother their attorney with what seems like a straightforward issue. A well-intentioned financial advisor could also complete the change of beneficiary form incorrectly.

Beneficiary designations are often used for life insurance and retirement benefits, but more frequently, they’re also being used for brokerage and bank accounts. People trying to avoid probate may name a “payable on death” beneficiary of an account. However, they don’t know that doing this may undermine their existing estate plan. It’s best to consult with your attorney to make certain that your named beneficiaries are consistent with your estate planning documents.

Wealth Advisor’s “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan” lists seven issues you need to think about, when making your beneficiary designations.

Cash. If your will leaves cash to various people or charities, you need to make certain that sufficient money comes into your estate, so your executor can pay these gifts.

Estate tax liability. If assets do pass outside your estate to a named beneficiary, make certain there will be sufficient money in your estate and trust to pay your estate tax lability. If all your assets pass by beneficiary designation, your executor may not have enough money to pay the estate taxes that may be due at your death.

Protect your tax savings. If you have created trusts for estate tax purposes, make sure that sufficient assets flow into your trusts to maximize the estate tax savings. Designating individuals as beneficiaries instead of your trusts may defeat the purpose of your estate tax planning. If there aren’t enough assets in your trust, the estate tax provisions may not work. As a result, your heirs may eventually end up paying more in taxes.

Accurate records. Be sure the information you have on the change of beneficiary form is accurate. This is particularly important if the beneficiary is a trust—the trust name, trustee information and tax identification number all need to be right.

Spouses as beneficiaries. Many people name their spouse as the primary beneficiary of their life insurance policy, followed by their trust as the secondary beneficiary. However, this may defeat your estate planning, especially if you have children from a first marriage, or if you don’t want your spouse to control the assets. If your trust provides for your surviving spouse on your death, he or she will be taken care of from the trust.

No last minute changes. Some people change their beneficiary designations at the last minute, because they’re nervous about assets flowing into a trust. This could lead to increased estate tax payments and litigation from heirs who were left out.

Qualified accounts. Don’t name a trust as the beneficiary of qualified accounts, like an IRA, without consulting with your attorney. Trusts that receive such qualified money need to contain special provisions for income tax purposes.

Be sure that your beneficiary designations work with your estate planning, rather than against it.

Reference: Wealth Advisor (October 8, 2019) “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan”