Are Your Documents Following the Same Script?

Needham Estate Planning

In the event of your untimely death, the manner in which your beneficiaries -- or those people who receive your assets from your estate -- are determined is highly dependent on how your property is titled.

Generally, property with title includes vehicles, boats, airplanes, real estate, bank accounts, savings bonds, life insurance policies, retirement accounts, and stock certificates.

If you die without a will or a trust and haven’t used any beneficiary or transfer on death options, state law will determine who inherits property with a title.

On the other hand, property without a title, such as jewelry, antiques, art, and even your digital assets are usually provided for in your will or trust, and if you don’t have one typically goes to your heirs at law.

As you can see, who you have listed as a beneficiary -- and not having a beneficiary designation at all -- can have serious implications for your family after you have passed away.

Increasingly, a wide range of financial products allows you to name a beneficiary upon your passing.

The benefit of naming a beneficiary is that the assets go directly to the named beneficiary upon the account owner’s passing, often bypassing the long and expensive process of probate.

The danger is, however, that when these designations are not carefully coordinated with your estate plan you can inadvertently disinherit a loved one, cause a disabled family member to lose government benefits, leave your heirs with a massive tax bill, or otherwise fail to achieve your goals.

What is a Beneficiary Designation?

Simply put, a beneficiary designation is a contractual agreement where the bank, insurance company, or financial company agrees to pay a person or entity, that you have selected, the specific assets upon your death.

For example, Bob may list Susan, his sister, as the payable on death (POD) beneficiary for his savings account at ABC Bank. When Bob dies, ABC Bank will pay Susan the balance in Bob’s account, without Susan having to first go to probate court.

But properly choosing a beneficiary and making sure it falls in line with your estate plan is often more complex than it seems at first glance.

Completing a beneficiary designation form is not just a routine task that you complete when filling out your bank account, life insurance, or human resources documents. In fact, naming beneficiaries is something that you should take very seriously and should consult your estate planning attorney about.

Coordinating Your Beneficiaries

It’s important to note that beneficiary designations supersede your will or trust.

For example, let’s suppose that Bob’s will stated that his entire estate is to be given to Elizabeth, his daughter. Since Bob used a payable on death beneficiary designation on his ABC Bank account, that asset will instead go to Susan, not Elizabeth.

In other words, if you name one relative to inherit assets in your will or trust, but some of those assets have someone else listed on the beneficiary designation, then your entire plan isn’t going to work as you likely intend.

For this reason, it is vital to ensure that your beneficiary designations are coordinated or aligned with your estate plan in order to fully protect you and your family.

Of note, many beneficiary forms have a designation for contingent beneficiaries.

A contingent beneficiary is basically a “Plan B” to your initial designation. So, in the event, your primary beneficiary passes away before you, the contingent beneficiary steps in their place and gets their share of the asset.

Estate Planning Help

The best strategy for ensuring your wishes are carried out is to first understand how naming beneficiaries has a significant impact on your heirs and then coordinate your wishes with an estate planner.

We are here to help you coordinate all of your assets and beneficiary designations with your estate plan so that everyone gets the protection they deserve.

How Long Should You Keep Important Documents?

In a society dominated by paperwork, the question of how long to hold on to important documents has been baffling for most people.

We especially worry about documents of a financial or personally identifying nature. People who worry about losing something important sometimes hoard everything; others who worry about things like identity theft are too quick to shred documents.

Most of us, however, lies somewhere between these two extremes: Simply and utterly confused about what to keep and how long to keep it.

You do need to save certain documents longer than others, and— for financial and estate planning purposes—these documents should be organized and accessible.

Some documents should be kept forever, others for shorter periods of time—yet many documents aren’t important enough to save.

While it might seem like a good idea to hang on to everything, the resulting clutter might make it difficult to locate important papers amid all the unimportant ones. And, even with digital documents, you can still run out of space.

Let’s help unravel this confusion by offering some guidelines on which documents should be kept, and for how long.

Keep These Documents for Three Months or Less:

  • ATM receipts
  • Credit card receipts
  • Receipts for small or everyday purchase
  • Utility bills

Unless you have a specific issue (such as company reimbursement practices or business deductions on your income tax return), after 1-3 months, these receipts become inconsequential and add to the clutter in your home or office.

Your bank statements will reflect ATM withdrawals, and your bank and credit card statements and canceled checks can be proof of payment for utilities and other regular purchases.

Keep These Documents for One Year:

  • Monthly mortgage statements—Your annual tax statements will eventually make these redundant.
  • Paycheck stubs—Once you’ve reconciled these stubs with your annual W-2, you no longer need them.
  • Checkbook ledgers (if you use them)—Many people today keep ledgers online using accounting software. If you do the old-fashioned handwritten check ledger, you won’t need it longer than a year.
  • Insurance statements and records—Once you receive a current policy renewal or statement, the old one becomes obsolete.
  • Investment account statements–In general, store these for at least one year. Include your monthly statements as well as any trade confirmations.
  • Undisputed medical bills and receipts—Keep these documents if you’re haggling with insurance or have a personal injury case in the works, keep these as evidence. Otherwise, you can get rid of them after a year.

Keep These Documents for at Least Seven Years:

  • W-2 and 1099 forms—These documents prove your income for loans and possible tax audits.
  • All tax-related receipts—These documents justify your tax deductions if the IRS wants proof of them.
  • Canceled checks for tax, business, mortgage and home improvement purposes—Some people like to save all their canceled checks, but if you want to minimize, go through these checks once a year and shred any that are irrelevant while keeping those that relate to your tax, business, mortgage, or home improvements.
  • Bank statements–Keep them for at least one year, either in printed form or saved in electronic form. They can be used when identifying potential fraud, identity theft or other anomalies with your account. As with all financial or legal documents that have personally identifiable information, always shred paper copies before discarding.
  • Disability records and unemployment income stubs—It’s a good idea to keep paperwork related to income you receive directly from the government.

Keep These Documents Forever/Indefinitely:

  • Income tax returns—Some suggest your returns can be shredded after seven years along with your tax preparation documents, but we recommend holding onto the returns themselves.
  • Personal identification documents—These include birth certificates, Social Security cards, current and outdated passports, etc.
  • Legal documents—These include marriage and divorce certificates, lawsuit settlements, etc.
  • All receipts and documents related to your home or real estate holdings—These include mortgage documents, title/deeds, home improvement receipts and records related to buying and selling the property (including commissions and fees). Keep these documents for as long as you own the property, plus a minimum of six years after selling.
  • Vehicle titles and related loan documentation--Hold these for at least three years from the date the transaction is finalized. Many people keep them for ten years or longer, however, because they can be helpful even long after the transaction is done if there are any questions.
  • Receipts for all major purchases—Keep these receipts for warranty purposes and to show value for possible insurance claims. You can shred these when you sell.
  • Annual investment and retirement account statements–Your quarterly statements should be held until the annual statement arrives. At that point, cross-check the quarterly statements with the annual one. If everything matches, you can shred the quarterly statements. Keep the annual records until the account is closed.
  • Education records—These include high school and college transcripts, as well as diplomas and degrees.
  • All relevant financial planning records—These documents include wills, living wills, trust documents, pension plan documents, power of attorney designation, medical and burial information, etc.

Electronic versus Physical Storage

In today’s digital age, many people choose to save important documents electronically by scanning them and saving them to a hard drive or into a cloud-based storage service, like Dropbox, Box, Google Drive, or iCloud. This strategy is an excellent one for saving space and reducing clutter.

If you choose to do so, we recommend backing up these documents in several places with at least one backup offsite (for example, if you use secure cloud-based storage, make sure you have a backup on a second service or use a hard drive stored in a safe deposit box).

However, you should always keep a physical copy of the following items, preferably stored securely in a safe deposit box:

  • Birth certificates
  • Social Security cards
  • Passports and other legal IDs
  • Marriage license
  • Property deeds and related mortgage documents
  • Vehicle titles and related loan documents
  • Pension plan documentation
  • Insurance policies
  • Financial planning documents

There may come a day when we can go 100% paper-free, but we’re not there yet.

Final Tips about Organization

When figuring out which documents to keep and which to shred—as well as how long to keep documents—a good organization system will help keep things from devolving into chaos and clutter.

This system can be as simple as a filing system with folders labeled according to “expiration date” (i.e., three months, one year, etc.) or an online filing system with similar labels. Revisit your paperwork regularly to keep things up to date.

Keeping up with documentation can be a challenge, even for the most diligent families, and even with the most organized systems.

For financial planning purposes, we can help you set up a personalized legal document plan to help you stay on top of your planning needs.

Are Payable-On-Death Accounts Right For You?

Most people want to avoid their estate going through probate because their family will receive the inheritance faster, privately, and at a lower cost.  A payable-on-death account is a common way to keep bank and investment accounts out of probate.

But is a payable-on-death account an appropriate solution for your needs?

POD Accounts: The Nuts and Bolts

A payable-on-death designation can be set up for savings, checking, certificates of deposit, U.S. savings bonds, and investment accounts.

Upon the death of the account holder, the funds in the account pass directly to the named beneficiary.

Setting up a payable-on-death account is usually very easy.

Typically, there’s a form you have to complete and sign to select your beneficiary or beneficiaries. Additionally, you can change beneficiaries whenever you like or name several beneficiaries (allowing them to split the money).

After the death of thepayable-on-death account holder, the beneficiary can claim the money in a fairly simple process. Often, the beneficiary will need to show ID, provide a copy of the death certificate, and complete some forms provided by the financial institution.

Drawbacks of Payable-On-Death Accounts

So, a payable-on-death-account sounds great because they are easy, right?

But, there can be significant problems using this as the primary tool in your estate plan

What if a beneficiary predeceases you?

If you do not name new ones before you die, then your estate is back to probate. And negating the primary advantage of establishing the payable-on-death account in the first place.

What if the beneficiary is in the middle of a bankruptcy, divorce, or lawsuit?

Because a payable-on-death account transfers the money to the beneficiary without any protection, your beneficiary may lose his or her entire inheritance simply because the death of thepayable-on-death account owner occurred at the “wrong” time.

What if you are in a car crash and rendered legally incapacitated and unable to make decisions?

The named beneficiary cannot access funds to provide for your needs. payable-on-death accounts only function at death. They provide no protection in the event of your incapacitation.

A Better Solution Than a Payable-On-Death Account – Trusts

Establish a revocable trust to hold your accounts.

Just like a payable-on-death account, a funded trust avoids probate and is private.

But, unlike a payable-on-death account, it can incorporate alternate beneficiaries, so your assets avoid court even if someone predeceases you.

You can also provide long-term asset protection for your beneficiaries, protecting them against lawsuits, judgments, divorce, and bankruptcy courts.

If you become incapacitated due to an accident or illness, the successor trustee can use the assets in your trust to pay for your care.

Trusts provide all the benefits and peace of mind of a payable-on-death account without any of the downsides.

Estate Planning Tools are Context Dependent

Rather than pick tools out of a hat, you first need clarity on the big picture.

  • What are your goals and priorities?
  • What challenges do you face now-or do you anticipate confronting?
  • Whom do you want to protect?
  • What kind of legacy do you hope to leave?

We can organize your thinking and help you select appropriate planning tools from the arsenal.

Want to discuss payable-on-death accounts, trusts, or just your future in general?

How Does My Annuity Fit Into My Estate Plan?

Selecting the right type of annuity for yourself is no small feat. Of course, you’ve put in the research and planned with your financial advisors. But, you might still be wondering what happens to those annuity payments upon your death.

In addition to their benefits as a financial tool for your goals, annuities can have a positive impact on your beneficiaries after you’re gone — but only if you take smart estate planning steps to make sure your wealth ends up in the right hands.

Types of annuities

Your annuity type affects how things pan out after your death. In some cases, annuities end with the death of the annuitant. In other cases, the annuity payments continue to be distributed to a named beneficiary. If you haven’t already named your beneficiaries, it’s crucial that you don’t wait any longer. Make sure to work with your estate planning attorney when naming your beneficiaries because you’ll want them to be coordinated with your will or trust.

Immediate vs. deferred:

You may have chosen an immediate annuity, which begins paying out as soon as your initial investment is made. This is a common choice for those nearing retirement or those looking to secure long-term income after a windfall like an inheritance or the sale of a business. However, many people opt for a deferred annuity and don’t begin receiving payments for some time. Deferred simply means that it begins paying out at some point after the initial investment.

Fixed-period or lifetime:

A fixed-period annuity only lasts for a predetermined amount of time (such as 20 years). A lifetime annuity pays out during the annuitant’s life, and these are commonly purchased for the lives of both spouses.

Fixed-sum or variable:

Within both immediate and deferred annuities, you’ve likely selected either a fixed-sum payment schedule or fluctuating payments depending on the performance of your investments in the market.

Why you need to name your beneficiaries explicitly

It’s easy to think that including your loved ones in your will or trust is enough to cover your annuities as well. But if you want your children, spouse, or other individuals to receive your annuities when you’re gone, you need to fill out paperwork (in consultation with your estate planning attorney) that names those people as beneficiaries. Otherwise, your annuity sums could end up going to people you don’t want to leave your legacy to.

Annuity death benefits

There are a few different ways you can build death benefits into your annuity plan so that your wealth is passed on to your beneficiaries once you’re gone.

  • Standard death benefit: The value of the annuity at the time of your death is passed to your beneficiary.
  • Return of premium death benefit: Either the current value or the amount of the initial premium (whichever is greater) is distributed to your beneficiary.
  • Stepped-up death benefit: The highest anniversary value is distributed to your beneficiary.

In each of these cases, your beneficiary can decide if they’d like to receive this payment as a lump sum or over a period of time. With so many options, it’s a good idea to discuss an annuity with your estate planning attorney before you sign up for one. Your financial advisor works with you to make sure the annuity fits your financial goals, and we can work with you to make sure it works with your estate planning goals. If you already have an annuity, it’s important to work with your us as your estate planner to make sure it’s taken into account with the rest of your estate plan.

Annuity taxation

It’s rarely uplifting to consider how much of your annuity value will be lost to taxation before being handed over to your beneficiary, but taxes are a fact of life (and estate planning). Your annuity will either be taxed as part of your estate (as an estate tax if you have a large enough estate) or as a disbursement to your beneficiary upon your death (as an income tax). However, in most cases, your spouse can continue to receive annuity benefits or inherit your annuity with little to no tax burdens.

How your estate planning attorney can help

As with many estate planning and financial issues, choices you make about your annuity can make a big difference for your loved ones. You want to make sure you’re setting your beneficiaries up with the right kind of death benefits with as little loss to taxation as possible. Give us a call today so we can review your current annuities and explore ways to get more out of them for you and your family in the long run.

Is a Financial Plan Enough?

Everyone wants to leave a financial legacy for their family.  If you only have a financial plan, then you’re trying to guide a boat with only one oar.

A financial plan is only part of the puzzle for your overall monetary health.  Your financial plan should work in tandem with a solid estate plan to create the best possible future for you and your family.

So what’s included in a financial plan?

Financial planners take stock of an individual’s fiscal landscape and come up with approaches to maximize his or her overall financial well-being.

Let’s take Emily for instance, an energetic project manager in her late-twenties. She’s found a successful career track after graduating college and now has the steady income necessary to start daydreaming about buying a house with bay windows like the one she passes on her morning commute.

But before she can take such a big leap, Emily tracks down a skilled financial planner who will take an honest look at her foreseeable cash flow and her spending and saving habits. People from all walks of life use the help of financial planners to make sure they’re in good shape for making big purchases, saving for their children’s education, and ensuring a comfortable retirement. This also includes developing an investment portfolio, which the financial planner monitors and manages.

But financial planning only goes so far. To have a comprehensive approach, Emily also must also consider her estate and the wills and trusts she should put in place so her assets go where she wants them to in the long run. That’s where estate planning comes in.

So what’s included in an estate plan?

Estate planning determines what will happen to a person’s assets if he or she becomes mentally incapacitated or when he or she dies. While this may not sound like the sunniest of topics, knowing that what you pass on to your family will be legally protected lets you focus on enjoying the best things in life without worrying about your loved ones’ futures.

Estate planning includes defining how you want your loved ones to benefit from the financial legacy you leave behind, implementing tactics to protect your assets from creditors down the road, providing a framework so your loved ones can make medical decisions on your behalf when you can’t, developing strategies to help you reduce estate taxes, and more.

And at the end of the day, an estate planning attorney can act as a teacher. He or she should be equipped to clearly explain your legal options. Even though estate planning can be highly technical, your professional bond with your attorney can and should feel like a friendly partnership since it involves taking an honest look at many personal wishes and priorities. There is no one-size-fits-all estate plan, so choose an attorney whom you trust and enjoy working with and who is responsive to questions and needs.

Remember Emily? While financial planning helped her get from point A to point B with some pretty big money milestones, she now knows she needs an estate planning attorney to make sure her wishes are carried out and her money stays in the right hands—her family’s.

How these two efforts work together

There are several ways these two components of your financial wellness work in harmony. Asking your financial planner and estate planning attorney to collaborate is common practice, so don’t be concerned that what you’re asking is outside their regular scope of work. Knowing who else advises you will help both parties get the information they need do their jobs at peak effectiveness. For example, your estate planning attorney may prepare a revocable living trust for you, but your financial planner may help you transfer certain assets into that trust.

What are you waiting for?

If you already have a financial planner and are thinking about working with an estate planning attorney, you’re in an excellent position. Estate planning attorneys routinely work with advisors work together. This might save you time and money, as we’ll get up to speed with the help of your financial planner.

The right time to plan your estate is right now. The sooner you put yourself and your family in a position to rest easy knowing a solid plan is in place, the better. And now that you know your financial plan is a wonderful start—but not a complete solution—you’re ready to take the first step on the path to total financial security.

Something else to consider

After you have a financial and estate plan in place, you should also consider creating a Wealth Transfer Plan, which is a series actions taken to prepare your family for their inheritance, help keep family harmony and help your family makes sound decisions about their inheritance. A sound plan involves:

  • Communicating your money values and family goals
  • Sharing intentions as to heirs and time frames of transfers.
  • Introducing family members to your advisors (financial planner, estate planning attorney, accountant) so they know who they will be working with.
  • Create an understanding by the heirs of the family assets and encourage a strong foundation of investing so they are prepared when the time comes.
  • Encourage family members to establish their own financial and estate plan so they are better prepared to accept and inheritance.