Read more about the article What Is a Beneficiary? Annapolis and Towson Estate Planning

What Is a Beneficiary? Annapolis and Towson Estate Planning

A beneficiary can be designated by the owner or automatically assigned through the policy or contract. It’s essential to understand who these beneficiaries are and how they will be affected by the annuity payments to best plan for retirement income needs, says The Salisbury Post’s recent article entitled “What exactly is a beneficiary?” Let’s look at the different types:

  • Primary Beneficiary: This is typically designated by the owner when they buy the account who will receive any remaining funds from the annuity after the owner’s death. If there are multiple primary beneficiaries on an account, each may get a proportional portion of any remaining funds at death based on their age and relationship to the owner. Depending on individual circumstances, this may be taxable.
  • Secondary Beneficiaries: This is another individual who might benefit from an annuity upon the death of both owners (if it’s owned jointly). If a secondary beneficiary isn’t named, any remaining funds will pass directly through the owner’s estate according to state laws of intestate succession, if applicable.
  • Contingent Beneficiaries: In some instances, an owner may want to name a contingent beneficiary in the event that the primary and secondary beneficiaries predecease him or her before taking ownership of the annuity.

Annuity owners should keep their beneficiaries up to date by making sure they’re aware of changes in their lives such as marriages, divorces, the births or adoptions of children, the deaths of a loved ones, or any other relevant life events that may impact the ownership and/or distribution of the annuity policy.

It’s also important to think about the tax implications for everyone involved and how the funds should be allocated should something unexpected happen.

By understanding annuity beneficiaries and taking the time to name them correctly, an annuity owner can be sure his or her beneficiaries receive the funds from the annuity in accordance with their wishes.

Speak to an experienced estate planning attorney for more information about annuities and how naming the correct beneficiaries may help protect both you and those closest to you in the future.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Salisbury Post (Feb. 26, 2023) “What exactly is a beneficiary?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary? Annapolis and Towson Estate Planning

Do I Need a Will If I’m Leaving Insurance Policy to a Beneficiary? Annapolis and Towson Estate Planning

If you aren’t thorough with your estate planning, you could create conflict, even with the best of intentions, says a recent article from Yahoo Entertainment titled “Life Insurance Beneficiary vs. Will: Do I Need Both?”

Your life insurance beneficiary designation supersedes your will, so you’ll need to have your life insurance policy and your will aligned to save heirs from stress, confusion, and possible litigation. You can use both life insurance beneficiaries and wills to bequeath assets to others when you die. However, they can work together or against each other, so meticulous planning is key.

Here’s how they work, and which takes precedence.

A life insurance beneficiary is the person or entity, like a charity, named to receive proceeds from your life insurance policy when you die. Your beneficiary will receive payment from the life insurance policy according to the terms of the policy. Who you designate as a beneficiary doesn’t have anything to do with who receives other assets from your estate, such as property or financial accounts.

A will is a legal document declaring who should receive your possessions after death. The will does not define the destination of one specific asset, like a life insurance beneficiary. Instead, it contains a list of the beneficiaries who you wish to receive your assets.

If you have minor children, a will is also used to assign legal guardians, the people who you wish to raise your children in your absence.

Your will needs to go through probate court before beneficiaries receive anything. The probate process confirms your will’s authenticity, interprets the language in the will and authorizes the named executor to carry out your intentions. Your life insurance policy goes directly to your beneficiary without probate review.

Does a life insurance policy override a will? If you designate one person to receive your life insurance policy proceeds and then name a different person in the will to receive the proceeds, the person named in the life insurance policy will win. Any intentions in the Will don’t influence or have any legal power over what’s in the will.

Your beneficiary designation in the policy is the sole determining factor, with one exception. If the beneficiary passes away before you and there is no contingent beneficiary named, the life insurance proceeds will go to your estate. Your executor will then disburse assets from the estate according to the beneficiaries named in your will.

Do you need a will? While a will has no influence over your life insurance, it’s a critical part of your estate plan. Probate court uses the will to determine who receives assets and name an executor. Just be sure that your will, any trusts and named beneficiaries on life insurance and other accounts are aligned to avoid creating friction between loved ones. It’s best to have a will to bring cohesion to your estate plan, instead of relying on separate beneficiary designations.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo entertainment (Feb. 6, 2023) “Life Insurance Beneficiary vs. Will: Do I Need Both?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article How Can I Relieve My Family’s Stress when I Die? Annapolis and Towson Estate Planning

How Can I Relieve My Family’s Stress when I Die? Annapolis and Towson Estate Planning

After losing a family member, people experience pain and grief. The situation gets worse if legal issues are involved, resulting in family conflicts. Such challenges are typically the result of a lack of planning when they could have been much easier if a good plan had been in place, says Scubby’s recent article entitled “7 Ways To Ease Your Loved Ones’ Suffering After You Die.” Let’s look at some ways to avoid problems after you pass away.

  1. Create an Estate Plan. This is the first step you can take in making your family’s life easier. Your heirs will inherit your estate after you die. If you don’t have a written estate plan, it can be more difficult.
  2. Maintain a Binder for Documents. Store all of your important documents and information in a master document binder or some other system. Include important documents and information about your bank accounts, credit cards, investment accounts and information about your digital assets, such as emails, online banking, social media accounts and any other digital assets that you own. You should also give information that your family will need to access these documents and information.
  3. Buy Life Insurance. It’s smart to purchase life insurance as part of your basic estate plan. The loss of a family member can result in confusion, worry and anxiety regarding finances. Those left behind can sometimes wonder how to pay for necessities after a family member dies, so an insurance policy can solve that problem. This will give your family a financial cushion that will provide them with some breathing room.
  4. Write An Instruction Letter. A last letter of instructions for your family is smart, in addition to your estate plan. This gives you the chance to express your love and affection to each of your family members. You can also state where you want to be buried or if you’d like to be cremated, and what kind of memorial service you would like. Your testament doesn’t appear in this document. It only lets you state your final wishes about each of these matters. It has no real legal significance.
  5. Prepare Them Emotionally. It’s hard to comprehend the truth of death for you and your family. They’ll go through the grieving period without you, and to help them emotionally, you can honor the people in your life who matter most; offer an apology to those you have hurt; and/or forgive your loved ones, if they have hurt you.
  6. Pre-plan Your Funeral. To ease the burden on your family at your death, pre-plan your funeral. This means you’ve made your funeral arrangements and chosen what you want as part of your funeral services.
  7. Collect Important Documents and Contact Information. Organize important documents in a folder. This should include info on bank accounts, mortgages, insurance policies, employer contact information, estate planning, safe combinations and Social Security information. Make a list of close friends and family members, including their contact info, for your loved ones to contact in the event of your death.

This list of things you can do to ease the burden on your family isn’t exhaustive. However, it’s certainly helpful.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Scubby “7 Ways To Ease Your Loved Ones’ Suffering After You Die”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Top Benefits of Estate Planning – Annapolis and Towson Estate Planning

Top Benefits of Estate Planning – Annapolis and Towson Estate Planning

Despite the hard lessons learned during the COVID pandemic, surveys repeatedly show most Americans still don’t have an estate plan in place. According to the article “Five benefits of estate planning” from The Aspen Times, a comprehensive estate plan ensures your assets are distributed according to your wishes when you die, minimizes taxes on your estate and protects your loved ones, especially those who depend on you financially. In addition, estate planning protects you while you are living and ensures that your wishes are followed, if you become incapacitated.

Protect Yourself and Your Assets During Your Lifetime. No one likes to consider themselves at risk of incapacity. However, this happens. If you become mentally or physically incapacitated during your lifetime, you might not be able to earn income, or make decisions for yourself. Part of an estate plan includes documents to address these risks to protect yourself, your family and your assets.

Designating a health care proxy and a power of attorney gives people you choose the ability to make decisions on your behalf. Otherwise, the responsibility for your medical, legal and financial decisions may go to someone you don’t even know.

Asset Distribution. Without a last will, your home state’s laws govern the distribution of your assets. Your intentions to care for certain individuals won’t be relevant, as the law itself decides who gets what. A last will is used to state exactly how you want assets to be distributed. Your last will should be updated as your financial situation and/or family dynamics change. You should also review designated beneficiaries on investment accounts and insurance policies regularly and especially after any major life changes.

Minimize Transfer Taxes. While there’s no way to predict what taxes will take effect in the future, it’s safe to assume there will be taxes on your estate. If you hope to leave wealth of any size to your family, proper estate planning is crucial. There are many different strategies to minimize taxes on inherited wealth, including life insurance, Roth IRA conversions, lifetime giving and trusts. Your estate planning attorney will be able to create a plan suited for your unique situation.

Protect Family Wealth. As people accumulate wealth, they often become the targets of frivolous lawsuits. For this reason, placing assets in certain types of trusts can ensure efficient wealth transfer, as well as protecting assets from predators and creditors.

Create and Continue a Legacy. Legacy planning is part of the estate planning process. Many people donate money or assets on their death to causes they supported during their lifetime. These goals can be achieved by contributing to a donor advised fund, creating a family foundation or setting up a philanthropic trust.

Creating an estate plan is also a useful tool for having candid discussions with the family about the future, avoiding future conflicts and making your estate administration easier for loved ones.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: The Aspen Times (Jan. 24, 2023) “Five benefits of estate planning”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article When Is Life Insurance Taxable to Beneficiaries? Annapolis and Towson Estate Planning

When Is Life Insurance Taxable to Beneficiaries? Annapolis and Towson Estate Planning

When people purchase life insurance policies, they designate a beneficiary who will benefit from the policy’s proceeds. When the life insurance policyholder dies, the policy’s beneficiary then receives a payout known as the death benefit.

Yahoo Finance’s recent article entitled “Will My Beneficiaries Pay Taxes on Life Insurance?” says the big advantage of buying a life insurance policy is that, upon death, your beneficiaries can get a substantial lump sum payment without taxation, unless the amount of the life insurance pushes your estate above the applicable federal estate tax exemption. In that case, your estate will need to pay the tax.

While death benefits are usually tax-free, there are a few situations where the beneficiary of a life insurance policy may have to pay taxes on the lump sum payout. When you earn income from interest, it’s typically taxable. Therefore, if the beneficiary decides to delay the payout instead of receiving it right away, the death benefit may continue to accumulate interest. The death benefit won’t be taxed. However, the beneficiary will typically pay taxes on the additional interest.

If a life insurance policyholder decides to name their estate as the death benefit beneficiary, the estate could be subject to taxation. When you don’t designate a person as your beneficiary, the proceeds from the life insurance policy are subject to Section 2024 of the IRS code. That says if the gross estate incorporates proceeds of a life insurance policy, the value of a life insurance policy must be payable to the estate directly or indirectly or to named beneficiaries (if you had any “incidents of ownership” throughout the policy term).

The proceeds of a life insurance policy may also pass to the estate if the beneficiary dies, and there are no contingent beneficiaries. If you have a will in place, the proceeds will be paid out according to the terms of the will. If there’s no will in place, the probate court decides the way in which to distribute your assets.

The individual insured on a life insurance policy and the policyholder are usually the same person. The policyholder then names a beneficiary. However, a gift tax may apply if the insured, the policyholder and the beneficiary are three different parties. Because the IRS assumes the death benefit was a gift from the policyholder to the beneficiary, you might have to pay gift taxes on the death benefit.

Beneficiaries usually won’t have to pay taxes on life insurance proceeds. However, some situations can result in a taxable event. Be sure that your beneficiary designations are clearly outlined in the policy to avoid taxation.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo Finance (Jan. 17, 2023) “Will My Beneficiaries Pay Taxes on Life Insurance?”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Why You Need a Secondary Beneficiary – Annapolis and Towson Estate Planning

Why You Need a Secondary Beneficiary – Annapolis and Towson Estate Planning

A secondary beneficiary, sometimes called a contingent beneficiary, is a person or entity entitled to receive assets from an estate or trust after the estate owner’s death, if the primary beneficiary is unable or unwilling to accept the assets. Secondary beneficiaries can be relatives or other people, but they can also be trusts, charities or other organizations, as explained in the recent article titled “What You Need to Know About Secondary or Contingent Beneficiaries” from Yahoo life.

An estate planning lawyer can help you decide whether you need a secondary beneficiary for your estate plan or for any trusts you create. Chances are, you do.

Beneficiaries are commonly named in wills and trust documents. They are also used in life insurance policies and in retirement accounts. After the account owner dies, the assets are distributed to beneficiaries as described in the legal documents.

The primary beneficiary is a person or entity with the first claim to assets. However, there are times when the primary beneficiary does not accept the assets, can’t be located, or has predeceased the estate owner.

A secondary beneficiary will receive the assets in this situation. They are also referred to as the “remainderman.”

In many cases, more than one contingent beneficiary is named. Multiple secondary beneficiaries might be entitled to receive a certain percentage of the value of the entire estate. More than one secondary beneficiary may also be directed to receive a portion of an individual asset, such as a family home.

Estate planning attorneys may even name an additional set of beneficiaries, usually referred to as tertiary beneficiaries. They receive assets if the secondary beneficiaries are not available or unwilling to accept the assets. In some cases, estate planning attorneys name a remote contingent beneficiary who will only become involved if all of the primary, secondary and other beneficiaries can’t or won’t accept assets.

For example, a person may specify their spouse as the primary beneficiary and children as secondary beneficiaries. A more remote relative, like a cousin, might be named as a tertiary beneficiary, while a charity could be named as a remote contingent beneficiary.

Almost any asset can be bequeathed by naming beneficiaries. This includes assets like real estate (in some states), IRAs and other retirement accounts, life insurance proceeds, annuities, securities, cash and other assets. Secondary and other types of beneficiaries can also be designated to receive personal property including vehicles, jewelry and family heirlooms.

Naming a secondary beneficiary ensures that your wishes as expressed in your will are going to be carried out even if the primary beneficiary cannot or does not wish to accept the inheritance. Lacking a secondary beneficiary, the estate assets will have to go through the probate process. Depending on the state’s laws, having a secondary beneficiary avoids having the estate distribution governed by intestate succession. Assets could go to someone who you don’t want to inherit them!

Talk with your estate planning attorney about naming secondary, tertiary and remote beneficiaries.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Yahoo life (Jan. 4, 2023) “What You Need to Know About Secondary or Contingent Beneficiaries”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article What Is Needed in Estate Plan Besides a Will? Annapolis and Towson Estate Planning

What Is Needed in Estate Plan Besides a Will? Annapolis and Towson Estate Planning

Having a will is especially important if you have young children, says Fed Week’s recent article entitled “Estate Planning Doesn’t Stop with Making a Will.”  In your will, you can nominate guardians, who would raise your children in the event neither you nor your spouse is able to do so.

When designating a guardian, try to be practical.

Remember, your closest relatives—like your brother and his wife—may not necessarily be the best choice.

And keep in mind that you’re acting in the best interests of your children.

Be sure to obtain the consent of your guardians before nominating them in your will.

Also make sure there’s sufficient life insurance in place, so the guardians can comfortably afford to raise your children.

Your estate planning isn’t complete at this point. Here are some of the other components to consider:

  • Placing assets in trust will help your heirs avoid the hassle and expense of probate.
  • Power of Attorney. This lets a person you name act on your behalf. A “durable” power will remain in effect, even if you become incompetent.
  • Life insurance, retirement accounts and payable-on-death bank accounts will pass to the people you designate on beneficiary forms and won’t pass through probate.
  • Health care proxy. This authorizes a designated agent to make medical decisions for you, if you can’t make them yourself.
  • Living will. This document says whether you want life-sustaining efforts at life’s end.

Be sure to review all of these documents every few years to make certain they’re up to date and reflect your current wishes.  Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Fed Week (Dec. 28, 2022) “Estate Planning Doesn’t Stop with Making a Will”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article Should You Agree to Being a Guardian? – Annapolis and Towson Estate Planning

Should You Agree to Being a Guardian? – Annapolis and Towson Estate Planning

Yes, it is an honor to be asked to be the guardian of someone’s children. However, you’ll want to understand the full responsibilities involved before agreeing to this life-changing role. A recent article from Kiplinger, “3 Key Things to Consider Before Agreeing to Be A Guardian in a Trust,” explains.

For parents, this is one of the most emotional decisions they have to make. Assuming a family member will step in is not a plan for your children. Naming a guardian in your will needs to be carefully and realistically thought out.

For instance, people often first think of their own parents. However, grandparents may not be able to care for a child for one or two decades. If the grandparent’s own future plan includes downsizing to a smaller home or moving to a 55+ community, they may not have the room for children. In a 55+ community, they may also not be permitted to have minor children as permanent residents.

What about siblings? A trusted aunt or uncle might be able to be a guardian. However, do they have children of their own, and will they be able to manage caring for your children as well as their own? You’ll also have to be comfortable with their parenting styles and values.

Other candidates may be a close friend of the family, who does not have children of their own. An “honorary” aunt or uncle who is willing to embark on raising your children might be a good choice.  However, it requires careful thought and discussion.

Financial Considerations. What resources will be available to raise the children to adulthood? Do the parents have life insurance to pay for their needs, and if so, how much? Are there other assets available for the children? Will you be in charge of managing assets and children, or will someone else be in charge of finances? You’ll need to be very clear about the money.

Legal Arrangements. Is there a family trust? If so, who is the successor trustee of the trust? What are the terms of the trust? Most revocable trusts include language stating they must be used for the “health, education, maintenance, and support of beneficiaries.” However, sometimes there are conditions for use of the funds, or some funds are only available for milestones, like graduating college or getting married.

Lifestyle Choices. You’ll want to have a complete understanding of how the parents want their children to be raised. Do they want the children to remain in their current house, and has an estate plan been made to allow this to happen? Will the children stay in their current schools, religious institutions or stay in the neighborhood?

In frank terms, simply loving someone else’s children is not enough to take on the responsibility of being their guardian. Financial resources need to be discussed and lifestyle choices must be clarified. At the end of the discussion, all parties need to be completely satisfied and comfortable. This kind of preparedness provides tremendous peace of mind.

Reference: Kiplinger (Nov. 17, 2022) “3 Key Things to Consider Before Agreeing to Be A Guardian in a Trust”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Some Assets Better Left Outside of Will – Annapolis and Towson Estate Planning

A will is a document of last resort to transfer assets. There are many ways to transfer assets that would preempt the terms of a will. AARP’s recent article entitled “The Legal Limits of Your Will” provides a list of some major assets that often fall outside a will’s scope, along with tips for getting them to the people or organizations you want.

Retirement accounts. Those named as beneficiaries will get those assets, no matter what the will says. That’s because a beneficiary designation already informed the plan administrator how to handle the asset after your death. There’s no need for probate court involvement.

Life insurance policies. A life insurance policy’s beneficiary listing, not the will, determines who gets the proceeds. However, some states automatically revoke the beneficiary designation of an ex-spouse on a life insurance policy.

Bank accounts. If an account is titled as transfer on death (TOD), payable on death (POD) or joint tenancy with right of survivorship (JTWROS), those designations generally override the will. The account’s signature card would show if any of these designations applies. Ask the bank to look up your card if you aren’t sure. For individual accounts titled TOD or POD, the beneficiary can go to the bank with a death certificate (or death certificates) and proof of identity to transfer or collect the funds. JTWROS accounts become the property of the surviving account holder, who will need to show the bank a death certificate for the other account holder.

Real estate. If two spouses own a home jointly with right of survivorship or as tenants by the entirety, the property automatically is transferred to the remaining spouse without a court’s involvement. Real estate can also be transferred outside a will in certain states through a TOD deed, in which you name the beneficiary on the property.

Trusts. Any asset in a trust isn’t governed by a will. Therefore, trusts are another tool for distributing assets outside of probate court. However, after a trust is created, you must retitle accounts, change beneficiaries, or take other measures so that each asset you want to put into the trust will actually end up there.

Reference: AARP (September 29, 2022) “The Legal Limits of Your Will”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article What Do Your Kids Want to Inherit? – Annapolis and Towson Estate Planning

What Do Your Kids Want to Inherit? – Annapolis and Towson Estate Planning

Nearly everyone needs a will, also known as a last will and testament, to list all properties and assets and how they should be distributed postmortem. While the decisions are all yours, it’s helpful to know what personal possessions your children may or may not want to receive as part of their inheritance, as explained in the article “12 Things Your Kids Actually Might Want to Inherit” from Entrepreneur.

Making a list of things you want your children to inherit will save a lot of time, especially if you have a lot of possessions you want to give to them. You might think they want your collection of fine china and glassware, silverware and Grandma Helen’s sculptures. However, you might be wrong.

Wanting your children to have these items so they stay in the family isn’t wrong. However, it’s more than likely they’ll be donated after you die. If you want to make your children’s lives a little easier, here are twelve things they actually might want:

Cash money. Cash is the ideal asset, since it can be easily divided. Cash also provides an easy way to give your children a chance to invest in stocks or real estate or a means of starting a business.

Annuities. An inherited annuity has several advantages, including tax benefits, especially if they are non-qualified annuities paid for with after-tax dollars. By annuitizing an annuity, heirs may convert it into a steady and dependable income stream to help cover living expenses. They can choose to do this for a pre-defined period of time or for life, if the original annuity contract was created as a multi-life annuity.

Recipes. There are any number of ways to create a cookbook, from a simple bound folder to a hard-cover book likely to be shared and talked about, bringing warm memories to all.

Family Photos. Whether you take the time to organize them or not, videos and photos are your family’s history. Keep them in a water-proof bin and protect them for the future generations, until you’re ready to hand them over.

Trusts. Trusts are not just for wealthy people. Trusts are an all-purpose tool for passing assets across generations, controlling how they are used and minimizing estate tax liability. A trust is a legal entity to hold a variety of assets. A trust allows you to set down what you want done with the money, from paying for college to buying a first home. You name a trustee who is in charge of managing the trust and making sure your wishes are followed.

Furniture. Today’s young adult is more likely to want authentic furniture with family history than the latest knockdown furniture from Ikea. They also know how expensive good furniture is and may welcome saving money when furnishing their first home.

Vinyl Records. While collectors may value pristine records, the albums you listened to with scratches and skips will be prized by younger listeners. They evoke happy memories and hold sentimental value.

Life Insurance. If you want to leave money for your family but worry about the impact of taxes, life insurance is a good option. Your estate planning attorney will be able to explain who the beneficiary should be, or if you need to set up a trust to benefit your children.

Real Estate. Real estate is a strong investment with a track record of growth. Keeping a vacation home in the family for future generations requires extra planning. For many families, even a simple cabin by the lake is a touchstone of family history.

A Business. Family-owned businesses are often passed to the next generation. An established business has value up front and, if all is well with the business, provides income. A succession plan will be needed. Be realistic: if your children have never set foot in your office or expressed interest in the business, selling it may be a better move.

Investment Accounts. Stocks, bonds or other investment accounts can be gifted to children while you are living or after you die. Like cash, this asset is easily divided and relatively easy to give.

Education Funds. You can start a College Savings Account 529 for individual children when they are born or open one at any time to help with college expenses. Having financial help for college could be the difference between the burden of college loans or being able to explore different careers without the constant worry that a six-figure debt brings.

Contact us to speak with one of our estate planning attorneys and explore all of the different ways to transfer wealth to the next generation while you are living and after you pass.

Reference: Entrepreneur (Oct. 30, 2022) “12 Things Your Kids Actually Might Want to Inherit”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys