Last Will and Testament

Understanding how beneficiary designations work with your estate plan

If you have life insurance or a retirement plan you’re certainly familiar with beneficiary designations (BDs). BDs give you the ability to designate who will receive the asset at your death. It’s important to know that a BD trumps your will or trust. So if you gift a life insurance policy to Bob in your Will, but you list Bill on the BD, Bob’s out of luck.

BDs can be an effective tool in avoiding probate or ensuring that assets are distributed to your beneficiaries quickly after your death. However, if not given some thought, BDs can lead to some potentially serious financial and legal problems.

Here’s an example:

Husband and wife with 4 kids ranging in ages from 12-21. 21 year old takes a few college classes but really has no direction in life. He has never been able to save money. Lives at home and plays hours of online poker. 17 year old daughter who does well in school. She's smart with money and saves nearly all she earns. 14 year old son who has special needs. He'll likely never be on his own and will receive government benefits his whole life. 12 year son who is the most difficult child. He's constantly in trouble and was recently caught vaping at school.

Husband has a good job with great retirement benefits. When he initially filled out the paperwork for his 401k he wasn’t exactly sure who to name as beneficiaries. So, like most people in his situation he asked the HR rep helping him with the paperwork, what he should do. The reps advice: “Just name your wife as the primary and each of your kids as contingent. That’s what everybody else does.” Just to be safe, he ran it past his financial adviser who said that's how advises people to do it. Husband and his wife did the same thing on their life insurance policies.

Sounds like good advice, right? You want your assets to go to your spouse and kids.

Husband and wife are involved in a horrible car accident and both die. Fortunately, they had planned for this sort of situation. They both had a $500k life insurance policy and husband had $200k in his 401k. They had Wills and had named guardians for the 3 minor kids On first glance it looks pretty good. But is it?

What happens with the insurance policies and the 401k?

The 21 year old gets a check from the insurance company for his 1/4 share ($250k) and an inherited IRA for $50k. Zero provisions on how to spend it. Do you think he's going to keep taking college classes? Unless someone helps him, this money's gone in 18-24 months.

17, 14 and 12 year olds. Because they’re all minors, they can’t own these assets themselves. Instead, a custodian is appointed who handles the assets on their behalf. When they reach a certain age (21 in Colorado) the kids gain control of the money. The 17 year old seems like she might make good decisions, but who knows. What about the 14 year old with special needs? Inheriting that kind of money will disqualify him from Medicaid benefits because it puts him well over the allowable asset limit. Oops. (Much more on special needs planning next time). Troubled 12 year old? Serious drug user by age 21. $300k is going to ruin his life.

Husband and wife never intended for this to happen. They always wanted the best for their kids and assumed that leaving money for their kids in case something like this happened would only help them. So how do you prevent this from happening?

First: If you have a financial adviser, share this example with them and see what they say. It might be time to get a new financial adviser.

Second: Talk to an estate planning attorney (not your neighbor who's a personal injury attorney or your sister-in-law who practices patent law) who can work with you to prevent something like this from happening.

Third: If necessary, update your beneficiary designations.

Can you put a price on peace of mind?

I recently finished helping two separate clients with their estate planning. After we signed all of their documents, they both expressed the same sentiment—”We feel so much peace knowing that when something happens, we have everything in place.”

Providing my clients with that peace of mind is my primary goal when creating estate plans. If you’ve been putting your planning off and it keeps nagging at you, call me to set up a free estate planning consultation.

5 Things Your High School Graduate Should Have Before Leaving Home For School

May is graduation month. This is a time when many of you may be celebrating your children’s academic achievements, and even getting ready to send them off to college. During this hectic and emotionally tumultuous time, you may be all-consumed with helping prepare your soon-to-be college student for the next phase, causing you to overlook important estate planning matters. There are a few important things you should add to your to-do list as you get ready to send your kids off to college. 

1. Durable Power of Attorney for Health Care
Every year, roughly a quarter of a million young adults between the ages of 18-25 wind up in the hospital. From alcohol poisoning and nonlethal accidents to unexpected illnesses, it’s important to hope for the best but prepare for the worst. Once a child reaches the age of 18, a parent’s decision making role is significantly diminished, especially in regards to making healthcare decisions. 

Should your child get in a car accident, or fall ill and not be capable of making their own medical decisions, then without a durable power of attorney naming you as health care agent for the child, you cannot make medical decisions on your child’s behalf. If you want to ensure that you can continue to make healthcare decisions for your child, creating a health care power of attorney should be at the top of your to-do list. 

2. HIPPA Authorization
In order to make informed medical decisions, it’s important to include a HIPPA authorization form along with a health care power of attorney. Without it, you would be unable to communicate with healthcare professionals and insurance companies, as well as access your child’s health records and previous treatment information.

3. Durable Power of Attorney (Finances and Property)
Similar to a health care power of attorney, a financial power of attorney gives you the ability to make financial decisions on your child’s behalf, should they be unable to do so themselves. Should your child become disabled for any reason, then you would still be able to pay their  rent, credit card bills, utilities, access bank accounts and financial records, as well as manage any loans they may have.

4. FERPA Release
The Family Educational Rights and Privacy Act is designed to protect a college student’s privacy, but it can also leave parents locked out in an emergency. A properly worded release can allow you to talk to school officials and release pertinent educational records and information should you need it.

5. Last Will and Testament
While many parents don’t want to think about this topic, especially as their child leaves home, it’s an important one to add to the list. A will allows parents to honor their child’s wishes on what should be done with their social media accounts, bank accounts, and personal assets. It also allows the child to specify any funeral arrangements they would like to have.

They have a law degree and passed the Bar. They must be good, right?

Several years ago, my son had some reconstructive surgery.  My wife spent hours researching doctors before choosing a doctor in Denver. This doctor had an impressive resume-- she had attended great schools, had lots experience and we liked her. The first surgery was an absolute failure. The doctor was surprised at the result and assured us that if she did it again, we'd get the result we expected.  The second surgery wasn't much better, and our frustration increased. We decided to give her one last shot, thinking the third time's a charm.  Same surgery with the same result. We were furious and confused. How could someone who seemed so qualified, do such an awful job? Not just once, but three times. 

My wife and I were talking about this experience the other day, which led to a discussion about the wide range of abilities among professionals. There are lots of estate planning attorneys in Colorado Springs. Some are really good and some are really bad. So, how does someone know which one to choose? Here are my tips for choosing your estate planning attorney:

  • Ask for referrals from friends or family or coworkers. Do you have a CPA or financial adviser? These professionals regularly work with estate planning attorneys and should have some good insight.
  • Google their name and see what you find. Do they have a website? Do they have any reviews on Google? Go to the website Avvo and see what it says about them. 
  • Go meet them in person. Most attorneys offer a free 30-minute consultation. Ask lots of questions. After 30 minutes you should have a pretty good sense of whether you like the attorney or not, how experienced they are in estate planning and whether they're competent.
  • Don't confuse price with value and remember that you usually get what you pay for. I'd be nervous about an attorney who says they'll prepare your trust-based plan for $1,000. I'd run from an attorney who says it will cost $10,000 to do the same thing.

If you're looking for an estate planning attorney, try this out on me. Look me up on the web. Schedule a free consultation and come meet with me. I'm confident you'll be happy with what you find out. 

"I thought a Will avoided probate"

I was asked to look over a Last Will and Testament that was recently drafted by an attorney in town. I asked her what she wanted her estate plan to accomplish.  Among other things, she wanted to avoid probate when she died. She was shocked when I explained that probate would be necessary with a Will.

I don't know the cause of her misunderstanding--maybe from her prior attorney or from bad information on the web. Whatever the source, she thought she had a good plan in place. 

If you have a plan that you're uncertain about, or questions about how it should work, I'm happy to look it over. Better to fix it now, than to leave your family with a mess. 

Call Justin Fish Legal today for a free consultation.