TOD (Transfer on Death) designations, POD (Pay on Death) designations, and beneficiary designations for life insurance and annuity contracts are useful in the right circumstances. Each of these tools allows for an automatic transfer or distribution to the named beneficiary at the death of the owner. But these type of designations can have a few shortfalls. First, if the named beneficiary predeceases the owner, thjs type of designation will not be effective to transfer the asset. However, in most cases, the account owner can designate a contingent beneficiary, to ensure that the asset distributed in accordance with the client’s wishes.

But, if there is no contingent beneficiary, or if the contingent beneficiary also predecease the account owner, the asset may end up in the probate estate if the decedent passed away with a valid Last Will and Testament, which in many cases is what the owner was trying to avoid. And if the client died without a valid Will, then the asset would distribute to individuals under the intestate laws of the state where the client was domiciled at the time of their passing. In some cases, the account agreement with the financial institution might specify an alternate disposition, like to the spouse or next of kin rather than the probate estate of the owner, which is often the case when employer provided retirement plan accounts distribute in the absence of a designated beneficiary who survives the account owner.

Other Drawbacks

Joint tenancy of property between a decedent and a surviving beneficiary may also has similar drawbacks. Upon the death of the last surviving joint tenant, the property is included in that owner’s estate. Joint tenancy has an additional hazard during lifetime which can be illustrated by the following example: Mary has only one child, John. Mary wants to transfer all her assets to John at her death. She hears that an easy way to avoid probate is to add John as a joint tenant, so she does that. John gets sued. Unfortunately, Mary’s property held in joint tenancy with John is an asset that can be subject to John’s creditors, including his spouse in the event that John should go through a divorce. As a result, the “easy” estate planning method of transferring property at death became quite costly for John, since the outright receipt of jointly owned property, or distribution by a simple beneficiary designation, provides absolutely no protection for the beneficiary from their current or future creditors.

Another drawback of TOD and POD beneficiary designations, and ownership of property by joint tenancy, is that these types of property ownership do not plan for the incapacity of the account owner. In other words, if the owner becomes incapacitated, the existence of that form of ownership does not provide management of the asset during the owner’s life.

A Better Solution

A Revocable Living Trust is typically a much better solution for clients, and avoids all of the drawbacks detailed above, including management of assets in the event that the client suffers an illness, injury, or incapacity during their life.

More specifically, the disposition of property at death can be much more flexible, which Trust can include multiple contingent beneficiaries upon the lassing of a client. In addition, the Trust can include specific provisions to ensure that specific assets distribute in the right manner, and at the appropriate time, to designated beneficiaries. In addition, by including appropriate provisions in the Trust, assets which fund the Trust are not exposed to the beneficiary’s potential creditors, whichbos not th case with joint tenancy of property between a decedent and individual beneficary.

Finally, through inclusion of Successor Trustee provisions, a Trust can easily provide management of assets during an owner’s illness, injury, or incapacity. While a Durable Financial Power of Attorney could also accomplish asset management objectives, POAs are often not as readily accepted due to the reluctance by financial institutions’ to rely solely on these documents due to many incidents of fraud. Our experience reveals that a Revocable Living Trust is much more readily accepted by a wide variety of banks, brokersge firms, and other financial institutions.

As detailed above, while joint tenancy, TOD, POD, and beneficiary designations are simple, and can work in some circumstances, these type of beneficiary designations often have their drawbacks.

Let me get straight to the point: A Guardianship Proceeding, held before an Orphans’ Court Judge in the County where you reside, can be a very costly, stressful, and embarassing public proceeding.

Fortunately, Guardianship hearings can be completely avoided by having valid, well-designed Financial and Health-Care Powers of Attorney that are drafted in accordance with state laws and signed while the Principal is legally competent and acting on their own free volition.

Guardianships are Court sanctioned proceedings where any interested person can Petition the Orphans’s Court to enter an Order of Court which declares another person to be incompetent and incapable to manage his or her own personal health-care and financial affairs.

After a Guardianship Hearing, if the person is deemed incompetent, the Judge will appoint the Guardian. In some cases, the Guardian may be a trusted family member. However, Orphans’ Court Judges have broad discretion to appoint an independent third party to serve a Guardian.

In fact, in many cases, the Guardian appointed may not be a family relation, especially when there are no family members who desire to become the Guardian,bwhen there one or more parties contests the appointment of a Guardian, and where the Guardian’s ability to care for the person is,seriously questionable. But one thing is for certain — once a person is deemed “incompetent”, he or she has no control over who the Guardian will be currently or in the future. Such action is not acceptable to most people, since the vast majority of individuals desire to have control over their personal, health-care, and financial affairs.

For example, imagine someone you have never met is now completely controlling your estate — including all of your financial resources, your health-care decisions, and where you will live. Further, imagine your Guardian having the power and authority to decide when your family, friends, and loved ones can see you, if they are allowed to visit you at all.

Check out the name “Gloria Byars” on Google, and you will find several articles during this past year. Ms. Byars was the Court appointed Guardian for more than 100 individuals, yet had a long criminal record of committing fraud. With little oversight, Guardians, like Byars preyed (and still prey) upon the elderly, who often engage in unscrupulous activities, and who defraund or dissipate the assets of individuals who are declared incompetent by a Judge.

Recently, Pennsylvania legislature has signed into law new rules that take effect for Orphans’ Court Judges to follow when ruling in Guardianship cases. These new rules are intended to make the requirements for serving as a Guardian more stringent. In effect, the new law is designed to reduce, or weed out, some of the bad apples, but the system is slow to change and fsr from perfect. Therefore, it is very wise for you, and your loved ones, to completely avoid a Guardianship proceeding, whenever possible.

Therefore, do not procrastinate, by waiting until it’s too late for you and your family members to have a competent estate planning attorney design and implement valid Powers of Attorney for you. These core and comprehensive estate planning legal documents include your:

– Durable Financial Power of Attorney

– Health Care Power of Attorney, and

– HIPAA Waiver Authorization.

These are the three (3) legal documents that allow you to completely avoid a Guardianship Proceeding, by appointing one,or more people who you decide to step into your shoes and take care of your personal, financial, and health-care affairs, in the event that suffer an illness, injury, or incapacity, whereby you are unable to make important financial and health-care decisions for yourself.

With valid and up-to-date Financial and Health-Care Powers of Attorney in force, you can have peace of mind, and sleep well at night, by knowing exactly who will oversee your investments, and make prudent financial decisions on your behalf, in the event that you suffer a temporary or permanent disability.

Select your own Financial Agent and Health-Care Agent to serve under your Powers of Attorney, by personally deciding who are financially responsible individuals who you trust now to protect you, if something happens tomorrow, when you are not in a position to make extremely important decisions for yourself.

The Levin Law Firm regularly works with individuals to design and implement Powers of Attorney which are appropriate for our clients, in addition to drafting other vitally important trust and estate planning documents.

Since procrastination is the enemy, the best time to act is now, while the purpose and benefits of estate planning legal documents are fresh in your mind.

With IRAs and Qualified Plans, after the death of the “Participant” (the lifetime owner), there are required minimum distributions based on the life expectancy of the beneficiary. Often, people think that an individual must be named as the beneficiary of the retirement assets in order to use the beneficiary’s life expectancy and to prevent a forced faster distribution. But, that isn’t the case. A trust may be designated as the beneficiary. As long as the trust meets a few technical requirements, the IRS will look through the trust to its beneficiaries and use their life expectancies.

One of those requirements is that the trust must be irrevocable by the death of the Participant. So, for example, if you name somebody else’s revocable trust as the beneficiary and that person survives you, that won’t work. But, if you (the Participant) name your own revocable trust, that would work because your trust becomes irrevocable at your own death.

Why might you want to name a trust as beneficiary? A trust isn’t necessary in every circumstance, but they can provide benefits. Here are a couple of the benefits a trust can provide:

Asset Protection. During the Participant’s lifetime a Qualified Plan has unlimited protection in bankruptcy and an IRA has protection up to $1 million. However, a recent Supreme Court case found those bankruptcy protections don’t apply to an inherited IRA or Qualified Plan. A trust can provide an asset protection envelope for inherited assets which otherwise would not be protected, including IRAs and Qualified Plans. In most jurisdictions, if a trust has a third-party trustee and a fully discretionary standard, it provides asset protection.

Asset Management. If a beneficiary lacks the maturity or discretion to manage their own assets, a trust may be ideal. Depending upon how the trust is drafted, it still may use the beneficiary’s life expectancy when determining required minimum distributions, which determine how long you can keep the money in the plan and keep the tax advantages of the IRA or Qualified Plan.
If your beneficiaries could benefit from the asset management or asset protection advantages of a trust, consider naming a trust for their benefit as the beneficiary of your IRA or qualified plan. Naming a trust as beneficiary of an IRA or Qualified Plan doesn’t need to be scary.

When planning your estate, you’re probably going to feel a little overwhelmed at some point (and that’s why your estate planner is there—to help you!) Sure, in general terms, you might have considered what is and isn’t in your estate, but when you get down to it, you might realize you have way more stuff than you thought you did. This in turn leads to the question of what you should protect first. What assets are so important that they should be the first things you start with in your estate plan?

Ideally, you want to protect everything, because everything is important in its own way. But you have to start somewhere. Here is a suggested list of what you should start with, in no particular order. Note that some of these aren’t necessarily assets in the traditional sense (i.e. tangible items), but they do deserve a mention.

Your Home

First and most obvious, you need to think about your home, if you own one. Think about what you want to have done with your house after you pass on. Do you want it sold? Do you want it to be granted to your relatives? Owning a house is a big responsibility, and it can be expensive. If you want to have your home liquidated, that could be the best option if you’re unsure whether your relatives could financially support home ownership.

Your Business

This can apply to a business you own or just your assets that you have from work (equipment, stocks, etc.). If you have equipment or a business that you want to keep in the family, you should protect that in your estate plan. You can also include other plans for what you might want done with it, such as sale, transfer of ownership, or something else.

Family Items

Everyone has family heirlooms and items that they don’t want to see leave the family. These items are important to your heritage and help future generations understand your origins. Include these valuables in your estate plan and make sure you grant them to someone you know will keep them safe and pass them along, ensuring that the heirlooms are kept in the family.

Intangible Assets

You may have stocks and investments that you count among your assets. When you pass away, think about what you want done with them and whether you think it will be more profitable to sell or transfer them. Make sure you grant these intangibles to someone that you know will be able to manage them, particularly if you’re giving away cryptocurrency, which is volatile and, although very popular, hard to handle.

Yourself

When creating an estate plan, you want to make sure that your own needs are met in the form of a healthcare directive and power of attorney. These documents ensure that your financial and medical needs will be taken care of according to your specifications should something happen to you to prevent you from making those decisions yourself.

Your Kids

If you have minor children, even teenagers, you will want to have some type of plan laid out for guardianship in case something happens to you. Make sure that you select guardians who not only have your overall values, but who will also keep your kids’ day to day life stable and secure. This a big decision, so don’t be afraid to take a lot of time to think about who you would want to raise your kids.

This quick list of things to think about when estate planning will help you get some idea of what, out of your giant pile of stuff, is important and should stand out. Talk to your estate planner if you’re feeling overwhelmed and need help, as they can assist you in picking out what you absolutely shouldn’t forget to cover, whether you’re writing a living trust, gifting property, or writing a will.