01 Sep 10 REASONS WHY WILLS AND TRUSTS ARE OFTEN BETTER THAN BENEFICIARY DESIGNATIONS
It is not unusual for many to merely focus on avoidance of probate – the process where the court decides whether the will is valid so that the executor can pay the bills and distribute the assets of the deceased. So many just name the beneficiary of an account (i.e., signature card says “paid on death) or other assets that go directly outright to the beneficiary. However, there are numerous reasons why that planning fails resulting in the preference for a will or a trust that can protect the beneficiaries or give additional options more aligned with the wishes of the asset owner.
Some of the options for protection or other options to consider include, without limitation, the following:
#1. Beneficiary predeceases you:
Even if you name a contingent beneficiary to an account, etc., a will or trust often names an ultimate beneficiary if all your named beneficiaries predecease you. If you lose mental capacity and a beneficiary predeceases you, you would not have the capacity to change your beneficiary designation. If that happened, probate would be needed. As a result, it is often suggested you have a will or trust.
#2 . Beneficiary has creditors:
If the person you have designated as an outright owner of your account has creditors, your assets may avoid probate, but the assets may go to the creditors of the beneficiary. A will or trust can be designed with a trust to protect your beneficiary from creditors.
#3. Protect Beneficiary who receives Public Benefits:
Many who receive public benefits must have limited assets or income. A direct inheritance to the beneficiary will often jeopardize valuable public benefits. Wills or trusts can have trusts that protect your beneficiary against losing such public benefits.
#4. Spousal Remarriage Protection:
If your spouse is a direct beneficiary of an account, etc., are you concerned if he or she remarries and your assets go to a family you don’t even know after your spouse’s death? Your will or trust can create a trust to protect against such an event while still providing for your surviving spouse during his or her lifetime.
#5. Child Remarriage Protection:
Similar to protection of your spouse, you might want to protect your assets from going directly to you child since your child could survive you and give your assets to their surviving spouse. The son-in-law or daughter-in-law could remarry, resulting in your assets potentially going to a family you don’t know. A trust within your will or trust could protect your assets after your child’s death.
#6. Protection against Spendthrift Beneficiary:
Does your beneficiary spend their money as soon as they get it? A will or trust can be designed with a spendthrift trust for your beneficiary’s protection. You can design a trust of how and when the beneficiary receives their inheritance. A mere beneficiary designation to an individual fails to give such protection.
#7. Protection of a Beneficiary with an Addiction:
Sometimes beneficiaries may have an addiction issue ranging from drugs and alcohol to gambling. Wills and trusts can create trusts that protect your assets for the benefit of your so that your assets are not lost as a result of the addiction.
#8. Beneficiary is a Minor or Immature:
A minor is not deemed to have capacity until reaching the age of majority. A trust can be created within a will or trust until the beneficiary (i.e., child, grandchild, etc.) is old enough or mature enough to be able to handle the inherited funds.
#9. Tax Planning:
Wills and trusts sometimes have various trusts to address different tax issues ranging from estate taxes to charitable planning.
#10. Incentive Planning:
Wills and trusts can create incentives ranging from doing well in school or getting degrees to financial incentives. Disincentives could be given as well.
A beneficiary designation may avoid probate, but sometimes the world is not perfect and so protection for you desired goals are needed.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.