When talking with your attorney about your new Will, be sure to find out if any of the assets is an IRA – an Individual Retirement Account — and be sure to check out your current beneficiary designations. Tax-deferred IRA accounts typically have beneficiaries designated by the account owner so that upon death of the IRA owner, the account will be transferred to one or more people and preserve the income tax deferral within the account.
You may have filled out those beneficiary forms years ago, and you need to verify who is named. An asset with a beneficiary designation is called a “non-probate asset.” The general rule is that the beneficiary designation would trump any contrary language in a Will. However, without coordination between the Will and the non-probate assets, there can be unexpected consequences, discord among the heirs, and expensive litigation.
We have frequently seen situations where our client has told us to draft a Will that leaves the estate equally to all of her children, but when we review all of the assets we learn that she had put beneficiary designations on her IRAs and annuities which result in a very uneven distribution when all is said and done. If this is intentional, that’s fine, and notes can be kept by the attorney in the file in case anyone raises questions later on. On the other hand, if this is inadvertent, the client corrects the disparity by filling out new beneficiary forms at our office when the Will is signed.
If an IRA is payable to a minor, you may want that IRA to be paid to a Trust for sole benefit of the minor. If there’s no trust, the minor will have access to those funds at age 18, and before that, the funds will either be controlled by the minor’s parent/guardian or be paid into a Surrogate’s Court account. The Trust can be written into your Will, or it can be a Trust that you have established during your lifetime. The beneficiary designation has to carefully describe the Trust with specificity, along with the name of the beneficiary.
Two recent NJ cases demonstrating the chaos and litigation that can ensue when IRA beneficiary forms aren’t handled carefully are In re Estate of Strohmenger, 2013 WL 587256 (Appellate Division, not approved for publication, No. A-5669-11T4) and In re Estate of Polk, 2013 WL 2095806 (Appellate Division, not approved for publication, No. A-0286-12T2).
Call us to review and update your estate plan … 732-382-6070