If you would prefer, you can take a look at the transcript below.
Welcome back, I’m greg Ashcraft and I’m an attorney with the Ashcraft Firm and i practice primarily in estate planning and this is the second of a four week course. I am going to be talking to you about the four ways that you can pass property at time of death.
Last week we talked about passing property through your estate. we talked about some of the pros of that method: it is really easy to set up, you don’t have to do anything. If you think your estate will need court oversight passing property through your estate might be the way to go. But there are a lot of downsides, and those are mostly associated with the fact that it is overseen by the court. It is costly, it is time consuming and you lose some control over your property. There are a lot of reasons to avoid passing property through your estate. Any of the other three ways that we will be talking about will avoid passing property through your estate.
This week we will be talking about passing property by contract. So, what do we really mean when we say passing property by contract? We are really talking about passing property through a beneficiary designation, a contract between you and the custodian of that account. Also, you can use a transfer on death designation or a payable on death designation. These are all contracts that you are entering into with the custodian of that financial account. That is what we are talking about when we say passing property by contract.
Another one of the pros is that it is relatively easy to set up. There are other ways that you can set up your property that may be more time consuming initially. Typically when you set up a life insurance policy your financial advisor will work with you to set up a beneficiary designation at that time. When you set up an IRA or a 401(k) your financial advisor will typically set up that beneficiary designation with you then.
There are some cons associated with this.
Also, you can’t control how the distributions get paid out. Typically you just designate beneficiaries. You cannot say, I want to give my money to my minor child, but my minor child is not old enough yet, so I want to designate this person to watch over the money until my child is old enough. You can’t do that in a beneficiary designation. If on your IRA you listed your kids as contingent beneficiaries after your spouse and you and your spouse pass away together. Who is going to be in charge of the finances? It get’s kicked back into probate to figure out who is going to take care of the finances. so that is another problem: you can’t control how the funds are paid.
Another thing that people don’t often think about is lifetime planning. A lot of times when people are thinking about estate planning, they think I will be either alive or dead. But a lot of us will have a significant period of time when we won’t be dead but we cannot take care of our own finances because of mental incapacity. These beneficiary designations just aren’t comprehensive enough if you become mentally incapacity and cannot take care of your finances.
For the fourth and final downfall. It is easy to set up but it is hard to maintain these beneficiary designations because you have one of these contacts with each one of your financial institutions. If something changes then you are going to have to update each contract with each institution. So even though it is easy to set up the beneficiary designations it is hard to maintain them.
To recap, the pros are that creating contracts with your financial institutions can
but the downside is that you
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Nothing said in this post should be misconstrued as legal advise. The information is situational. You should seek legal counsel as to whether the strategies and consequences apply in your situation. Also, the very basic information given here is based on California law and may not apply in other states.