Beneficiaries vs wills

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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samtex
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Joined: Thu Feb 04, 2010 1:07 am

Beneficiaries vs wills

Post by samtex » Sun Aug 13, 2017 1:38 am

I have read many times on BH that by naming your beneficiaries on your investment accounts and savings etc. allows that asset to bypass your estate when you pass. Seems pretty simple if you are simply naming your spouse as 100% beneficiary but what about others, such as children?

Say you list your spouse as primary, what do you do about five children for example as secondary? What if one child dies for example?
Using a will is complicated in dealing with different "what if's", I don't see how those issues can be addressed by simply using beneficiaries.

Depending on the bank of investment company, I think there are limits how creative you can be in having multiple beneficiaries. I was going to review Vanguard's rules but they are offline at the moment updating.

Samtex

aristotelian
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Re: Beneficiaries vs wills

Post by aristotelian » Sun Aug 13, 2017 7:08 am

Do both and keep updated. Keep as much as possible out of probate.

msk
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Re: Beneficiaries vs wills

Post by msk » Sun Aug 13, 2017 8:09 am

Too good to be practical? My kids are dispersed to different countries and tax jurisdictions. At least DW is resident with me and is named as Joint Owner with Survivor Rights. Now, obviously if I add a kid living in, say, Finland as a JOwSR then he would have to tax report to Finland on the portfolio. Or is it that a Beneficiary does not have to tax report? Is it really possible to pass a portfolio to kids without their having to pay taxes on it in the meantime? May work if the kids are in a lower tax bracket, perhaps even beneficial overall. But myself and DW are in a zero personal tax jurisdiction.

Geologist
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Re: Beneficiaries vs wills

Post by Geologist » Sun Aug 13, 2017 10:02 am

You need to be precise about terminology. Naming beneficiaries on accounts may allow those assets to bypass probate (as some who replied earlier stated), but the assets are still part of your estate. Someone (your executor/trustee of a trust if you have one) may need to account for all these accounts even if they don't have to do anything to "deliver" them to your heirs.

In any case, it may be difficult to pass many assets to heirs other than your spouse by "transfer on death" or beneficiary means. The financial institutions may not take multiple beneficiaries, if you have many. You may find it difficult to equalize the value of assets.

RedClay
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Re: Beneficiaries vs wills

Post by RedClay » Sun Aug 13, 2017 10:41 am

The problem you describe is a good reason to consult an estate planning attorney, who will likely suggest a revocable living trust. You create the formal trust documents, specifying how you want your assets distributed upon death. Then the grantor of the trust must "fund" the trust by titling all of their assets in the trust's name. With accounts that have payable on death designations available, you can simply name the trust as the beneficiary. Upon death, the assets will flow to the trust, where they will be distributed according to terms of the trust. The revocable trust allows the flexibility that you desire in designating beneficiaries among multiple children, while also having your assets pass outside of probate.

tibbitts
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Re: Beneficiaries vs wills

Post by tibbitts » Sun Aug 13, 2017 11:10 am

samtex wrote:
Sun Aug 13, 2017 1:38 am
I have read many times on BH that by naming your beneficiaries on your investment accounts and savings etc. allows that asset to bypass your estate when you pass. Seems pretty simple if you are simply naming your spouse as 100% beneficiary but what about others, such as children?

Say you list your spouse as primary, what do you do about five children for example as secondary? What if one child dies for example?
Using a will is complicated in dealing with different "what if's", I don't see how those issues can be addressed by simply using beneficiaries.

Depending on the bank of investment company, I think there are limits how creative you can be in having multiple beneficiaries. I was going to review Vanguard's rules but they are offline at the moment updating.

Samtex
You're overthinking this, at least in terms of life and death. Most beneficiary forms will explain what happens if you have five children and one dies. In at least some cases you will have a box to check that will either leave that portion to an estate or divide it equally among the other beneficiaries. You should only need a trust if you want to do more complicated conditional distribution rules.

No matter if you have beneficiaries or a trust, you have to update them equally in terms of the primary people involved (trustee, executor.) Even if those entities are institutions, sometimes institutions change.

samtex
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Joined: Thu Feb 04, 2010 1:07 am

Re: Beneficiaries vs wills

Post by samtex » Mon Aug 14, 2017 1:05 am

Thanks for all the insightful replies.

Samtex

bsteiner
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Re: Beneficiaries vs wills

Post by bsteiner » Mon Aug 14, 2017 8:09 am

RedClay wrote:
Sun Aug 13, 2017 10:41 am
The problem you describe is a good reason to consult an estate planning attorney, who will likely suggest a revocable living trust. ....
Revocable trusts make sense in some cases, and in some states. However, they've overhyped and oversold, and for most people, in most states, are not necessary, and tend to be a distraction.

The lawyer should suggest one if it's appropriate in your situation.

Why does every estate planning thread get hijacked into a discussion of revocable trusts. There are usually far more important issues.
Last edited by bsteiner on Mon Aug 14, 2017 8:21 am, edited 1 time in total.

LarryAllen
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Re: Beneficiaries vs wills

Post by LarryAllen » Mon Aug 14, 2017 8:16 am

Get a trust so you have both death AND incapacity planning covered. It's simple. Don't overthink it.

NotWhoYouThink
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Re: Beneficiaries vs wills

Post by NotWhoYouThink » Mon Aug 14, 2017 8:23 am

Why does every estate planning thread get hijacked into a discussion of revocable trusts. There are usually far more important issues.
Because most people don't think about estate planning very often, and don't immediately see the difference between having a trust now and leaving assets in trust after they are gone. A trust is a trust, right?

Also people sometimes assume that saying "a trust" is enough, and don't know they have to think in advance about what they want the trust to accomplish. There are options, and if you don't state your preferences you may not like what you get.

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