Avoid Estate Planning Pitfalls


By Gary Meeks, RICP®

Avoid listing your children as Joint Owners on your accounts: Why? Once you add children as joint owners, the funds in the account may be subject to lawsuits against your child or confiscation by the IRS should your child incur tax problems/obligations. Instead, consider using transfer on death (TOD) on the account or using Power of Attorney (POA).  Seek advice from an attorney as to which type of POA is most appropriate for you.

Don’t forget to fund your trust: What does this mean? Once you have established a trust, you must title the assets you want covered by the trust in the name of the trust. The trust becomes the owner of the assets and the assets are covered by the terms of the trust. Occasionally, some people believe once they have that trust document in hand, their assets are covered by the trust, not true.

Do a Beneficiary Review: Things change as we live our lives; our children change, they get married, sometimes get divorced and even pass away. Sometimes, grandchildren are listed as beneficiaries on accounts and the number of grandchildren increases. It is easy to forget who your beneficiaries are on IRAs, bank accounts, investment accounts, insurance contracts and trust accounts. Ask your financial advisor or account representative for a beneficiary review to make sure things are as you wish.

Do not list your Trust as the Primary Beneficiary on your IRA Account: By designating your trust as the primary beneficiary on your IRA, you limit the options available to your heirs upon your death and may cause some unintended tax consequences. In most cases, it is best to list a spouse as the primary beneficiary on an IRA and children as contingent beneficiaries. In the event there is no spouse, all children should be listed as primary beneficiaries.

Designating people, not entities, provides for more options for your loved ones upon death. For example, you are married with two children, Bob and Sue. Your spouse is the primary beneficiary and your children contingent beneficiaries. Upon your death, your spouse can treat the IRA as his or her own. If you and your spouse both pass, the two children can choose individual options to best meet their needs. Suppose Bob needs the money now—he can take a lump sum and pay the taxes now. Sue is in a high tax bracket and would rather defer distributions. She can open a beneficiary IRA and keep her portion invested— she will have to withdraw a small amount each year based on her life expectancy, but she can keep the money working and spread the tax liability over time.

IRA death distributions to a trust may be a taxable event and does not provide individualized options for your loved ones. There may be cases where a trust should be listed as the primary beneficiary if directed by a qualified estate attorney.

A qualified estate planning attorney or financial consultant can give you guidance as to the best beneficiary designations for your unique situation.

Gary D. Meeks, RICP®, is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity. 90 W 100 N STE 6, Price, UT 84501 (435)-637-8160.  

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

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