I again want to emphasize that it is very important to make sure that your bank account, mutual fund, 401(k), IRA, Roth IRA’s designated beneficiaries (primary and contingent beneficiaries) be reviewed periodically (at least annually) and whenever circumstances warrant (divorce, death of a beneficiary, birth of grandchildren, lottery-winning by a beneficiary!, whatever) so that they are valid and as you would want them. Some financial institutions (like Vanguard) send you annual reminders on your birthday. Others send nothing.
Outside of the house, these are your biggest assets and if they have TODs or designated beneficiaries in place – these accounts WILL PASS in accordance with your last valid designation. Divorce or the end of a relationship does not change the designation. Also, they pass completely in accordance with the contract you have with the financial institutions that have custody of your assets. If you choose to leave your designations “blank” or to your “estate,” then you will have to address these accounts in your will. That’s another ball of wax.
If possible, make sure that your elderly parents have done this as well. And, if they prefer that their IRAs go to the grandchildren’s generation to maximize the stretch, then make sure that this is reflected. If their IRAs “run out” of designated beneficiaries, then their “estate” inherits and you are stuck with another problem. I’m still dealing with this on one large IRA owned by FIL.
The most recent validly executed TOD or beneficiary form will replace all previous one or you can go online and confirm that you have properly done your housekeeping.
My last surviving parent had all assets titled as POD or TOD. It really made distribution relatively easy, although still time consuming. There was literally nothing left to go through probate. That may only be possible for more simple estates however.
While this is a kind approach, I can also attest that it can cause problems if the gift isn’t made in writing. I think if an elderly relative wants to give you something, you should either take it away, or at least have a note or letter in writing that it now belongs to you. I’m having this exact problem with my mother, who claims not to remember that an object in her home actually belongs to me.
Generally, concerning gifts of mementos and heirlooms: unless the item has actually been “delivered” to or taken by the recipient of the gift, the item is still owned by the “giver” and in the estate. The general rule is that gifts MUST be “complete” before ownership is transferred.
Consequently, unless the item is described or mentioned in the will or in some type of “memorandum” that the executor will follow (although without legal effect), then the problem that @Hunt describes is common.
Regarding long-term care insurance, I’ll just share my ILs’ experience.
They both had long-term care insurance that they obtained in their 60s (if I recall correctly). Their policies were identical though their premiums were different because of difference in age. When MIL went into assisted living, it was important to document her disability/condition so as to claim LT care benefits because of the policy’s elimination period. Her benefits were approx $3000 per month; actual assisted living costs were $8800 per month. Monthly costs at her assisted living facility (fairly nice) increased based on level of nursing care required. I believe she started at “level 2” because she needed help with basic needs. Once she needed more care, it became “nursing care” rather than “assisted living.”
General issues to consider when buying LT care insurance:
– elimination period before benefits kick in
– amount of monthly benefits vs.
– length of time monthly benefits are paid
– policy that pays benefits for assisted care at home
H and I said that if we needed nursing care, we’d prefer higher benefits for shorter time.
kjofkw is correct. POD and TOD on accounts enables relative simplicity and “ease” of access. Each financial institution will still require the beneficiary follow its procedures and complete required documents. If there are 10 accounts at 10 different institutions, the burden becomes estate administration and documents are not always easy for laypeople to complete. Sometimes, just getting the right answer from a company representative is iffy.
We did follow up with a written document as to where MIL wants her special jewelry to go; FIL is so desperately worried about losing their caregiver, he keeps wanting to bribe her to stay, including giving away jewelry. MIL, who is the one being cared for, feels the pay is sufficient & wants her jewelry to go to family. It is an interesting tussle, I suggest MIL choose one piece for the caregiver so that FIL could see it in writing and not keep worrying about it.
Regarding the in law gift, the main wait was for me to take it the next time I drove there as it was too large to take on a plane with me. I really am not upset with them, they are lame, they forget, but am frustrated with this friend for, in my opinion, abusing the affection. She was greedy and it was an unattractive choice, I lost some respect for her, it was simply inappropriate and she is all Sorority-Junior league, etc., I would have expected better manners
Based on my experience settling my ILs’ IRAs, which were the bulk of their estate value after their house, you definitely DON’t want the living trust to get the IRA. If your goal is to stretch the IRA for the longest life expectancy, you’ll want to leave the IRA intact and not have it distribute to the LT, which will be deemed ordinary income to the LT, and then have the LT distribute out the money to your LT beneficiaries. That does not make sense.
You can designate a trust as the beneficiary, but I believe those trusts have to meet special IRS requirements in order to qualify to take title to the IRA and have the IRA stay intact.
The goal is to descend/divide the IRA to the beneficiary/beneficiaries, each of whom will take it as a “beneficiary” of the decedent and whose RMD will be calculated based on his/her much-longer life expectancy. Whether or not the beneficiary must start taking RMDs the year after the decedent’s death depends on whether the decedent was himself taking RMD (after 70-1/2).
Also, in my recent experience, companies’ 401(k) plan accounts descend according to their plan documents, which may be less flexible than what is allowed by IRAs held by mutual fund companies. I plan to roll 401(k) accounts over to IRAs when applicable to allow max control.
Regarding post #125, when H and I met with a financial planner she discouraged us from considering LT care insurance. She said that due to escalating costs the policies were now very expensive, and that in her experience most people did not require assisted care for more than 3 years. She ran a series of ‘Monte Carlo’ computer simulated scenarios with assisted care up to 7 years for both H and I and showed we could get by as “self insured” with proper planning. Based on my experience with my mom’s assisted care situation I can only hope the options improve in the next decade or two. I hope to see more co-ops of senior adults who pool their resources to purchase care that is shared by the group. The profit driven model is definitely not in the best interest of either the retirees or the staff.
For folks who can afford it, I think self-insurance is ideal, as YOU get to choose when you need help and what help you need. You do not have to apply to an insurer who tells you that you do not yet qualify for benefits or that you have to go to only certain places to obtain them.
Of course, LTC can help people who need it, but we are able to self insure and I think that’s much better for us.
@attorneymother, my father recently started using his LT care insurance for home health care. He bought his policy in the early 2000’s and he purchased an inflation rider. I’m not sure how much extra that cost but it has brought us both considerable peace of mind these days.
How does the probate work if assets (such as securities and property) do not have TOD arrangements? Does the executor liquidate them, show proceeds to the court and then distribute according to the will?
If there are no TOD/POD on assets, then those assets are subject to decedent’s will:
– if there is a will --> will is probated when filed in probate court --> once will is probated, Executor carries out the provisions of the will --> assets are transferred in accordance with the will; if will disposition is done by way of specific asset, that asset goes to that beneficiary; if will disposition is done by %, then Executor has to liquidate assets and distribute proceeds according to the will
– Executor is also responsible for discharging all debts of estate (including taxes) so Executor will want to make sure that all debts are paid before assets or proceeds are distributed to heirs. Otherwise, the heirs have all the inherited monies and the estate is left with no money to pay debts and taxes. As the fiduciary, Executor is generally liable for estate debts.
NOTE: this is the primary reason why having all one’s liquid accounts subject to TOD/POD may NOT be a great idea because your Executor may be left with no funds with which to pay estate debts if all monies have been paid out to another beneficiary immediately upon death of decedent. You should take this into account when putting TOD/PODs in place for your accounts. Perhaps consider one of your TOD/POD accounts be designated in favor of your Executor.
In our case: we are holding back significant funds in the ILs’ LT checking account until after their final tax return has been filed and everything has been settled.
Estate administration is where the bulk of the work takes place.
– if there is no will --> state intestacy laws operate and estate administrator takes action to settle the estate
I am confused about the POD/TOD arrangement, say if each of my 2 children is to get 50% of one particular mutual fund as the designated beneficiaries, because of the TOD in place, it does not need to go to probate, how will the account be transferred to them and each of them getting 50%, does that mean all shares in that mutual fund has to be sold and proceeds paid to them? And they will then be responsible for the capital gain income tax at that time?
What’s the general rule of thumb as far as % of liquid asset needed for paying off debt and taxes? Depending on size of estate? We probably will not have any kind of debt except taxes owed, based on your comment, now I may want to leave a couple of bank accounts without POD’s.
The beneficiaries of a POD/TOD can work with the executor and notify the custodian/brokerage. The funds are generally transferred directly into the account designated by the beneficiary. If they have an account at the same place that the deceased did, it tends to be smoother and quicker, but if it needs to be transferred to another brokerage, that can happen with the receiving brokerage helping with paperwork.
It is helpful to have some funds available to help with the estate distribution. In our relative’s case, an account was set up to help with the estate in the name of the trustee, funded with estate assets. It was kept open until all expenses related to the etate had been paid and the estate had wound down (2.5 years–significant assets including accounts at multiple brokerages and banks, real estate in two states).
