Exploring Property Transfer Options at Death: Beneficiary Designations, Wills, and Trusts

Transferring property at death is a crucial aspect of estate planning, ensuring that assets are distributed according to an individual’s wishes and providing for loved ones after their passing. There are several options available to facilitate this transfer, each with its own benefits and considerations. In this article, we will delve into three primary methods: beneficiary designations, wills, and trusts.

Beneficiary Designations:

Beneficiary designations are commonly used to transfer certain types of assets, such as life insurance policies, retirement accounts, and payable-on-death (POD) or transfer-on-death (TOD) accounts. In Wisconsin, a transfer on death deed may be used to name a beneficiary on real estate. Individuals have the opportunity to name specific beneficiaries who will receive the assets upon their death.

One of the key advantages of beneficiary designations is their simplicity and efficiency. They typically bypass the probate process, allowing for a quicker transfer of assets to beneficiaries. Beneficiary designations have potential pitfalls and challenges can arise if they are not carefully managed. Here are some common issues that individuals may encounter when using beneficiary designations:

1. Outdated Designations:

   Failing to update beneficiary designations after significant life events such as marriage, divorce, births, deaths, or changes in relationships can lead to unintended consequences.

2. Failure to Coordinate with Overall Estate Plan:

   Beneficiary designations may not align with the intentions outlined in an individual’s will or trust. This lack of coordination can lead to discrepancies in asset distribution and may result in unintended beneficiaries receiving assets contrary to the individual’s wishes.

3. Disinheritance of Heirs:

   Beneficiary designations supersede provisions outlined in a will or trust. Individuals risk unintentionally disinheriting certain heirs who are not named as beneficiaries.

4. Unintended Consequences:

   Improperly structured beneficiary designations may cause negative outcomes for beneficiaries. For example, designating a minor child or individual with special needs as a direct beneficiary may subject the assets to unnecessary taxes or jeopardize eligibility for government benefits.

5. Failure to Consider Contingencies:

   Failing to designate contingent beneficiaries or alternative distribution plans can create complications if primary beneficiaries predecease the account owner. Without clear instructions for contingent beneficiaries, assets may be subject to probate or distributed according to the financial institution’s default rules, rather than the account owner’s preferences.

6. Lack of Review and Oversight:

   Neglecting to periodically review and update beneficiary designations can result in unintended consequences over time. Changes in financial institutions, mergers, or policy updates may affect the status of beneficiary designations, necessitating regular review to ensure accuracy and compliance with current intentions.

To mitigate these risks, individuals should maintain thorough records of all beneficiary designations, periodically review and update them as needed, and coordinate with their overall estate planning strategy. Consulting with your attorney can help ensure that beneficiary designations align with an individual’s goals and preferences while minimizing potential pitfalls and challenges.

For more information, see our article Make Sure Your Beneficiary Designations Match Your Estate Plan.

Wills:

A last will and testament, commonly referred to as a will, is a legal document that outlines how a person’s assets should be distributed upon their death. Wills also allow individuals to appoint guardians for minor children.

Wills provide individuals with greater control over the distribution of their assets, allowing them to designate specific beneficiaries and dictate the terms of distribution. They can also be used to establish trusts, name personal representatives to manage the estate, and address other important matters.

However, assets transferred through a will are subject to the probate process. Probate can be time-consuming, expensive, and subject to public scrutiny. Additionally, wills must meet specific legal requirements to be valid. Disputes among beneficiaries or challenges to the will can arise, potentially leading to delays and complications.

Trusts:

Trusts are legal arrangements in which a trustee holds and manages assets on behalf of beneficiaries according to the terms specified in the trust document. Trusts offer several benefits, including privacy, flexibility, and control over asset distribution.

Revocable living trusts are commonly used in estate planning to avoid probate and provide for the efficient transfer of assets. By transferring assets into the trust during their lifetime, individuals can ensure seamless management and distribution upon their death, without the need for court intervention.

Trusts can offer asset protection benefits, minimize estate taxes, and provide for the ongoing management of assets for beneficiaries who may be minors, incapacitated, or financially inexperienced.

Conclusion:

Most estate plans include a combination of beneficiary designations, wills, and trusts. Each plan is unique to the individual’s circumstances and designed to accomplish their goals. Beneficiary designations offer simplicity and efficiency for certain assets. But wills and trusts provide greater control, flexibility, and privacy in estate planning. We can help individuals navigate these options and create a comprehensive estate plan that meets their unique needs and objectives.