Page 25 - January 2018

Protect your assets — and your beneficiaries
Naming a beneficiary of a bank account, de- ferred savings or insurance policy is often an afterthought. But not giving serious consid- eration to this matter can have significant consequences down the road.
FOP
Benefits Plan
As you can see, beneficiary designations are fraught with risk and uncertainty. While there are advantages to nam- ing adult beneficiaries on retirement plan accounts, since they have the opportunity to roll over the funds into their retirement, this strategy must be balanced
with the risks outlined above.
Your best protection for your beneficiaries is a carefully
Accounts with beneficiary designations
• Deferred compensation. Your deferred compensation account held at Nationwide, an IRA, a 401(k), 403(b) or other employer retirement plan of yours or your spouse’s are all classified as “tax-qualified” accounts, with your income tax de- ferred to a later date.
• Bank and credit union accounts. Payable on death (POD, TOD) can be used to name a beneficiary at your death.
• Insurance policies. Any policy issued by an employer, or a policy you have purchased, requires beneficiary designa- tions.
• Living trust and last will and testament. Both of these com- mon estate plans have a beneficiary section.
Common beneficiary designation mistakes:
• Not naming a primary beneficiary. If you do not name a
beneficiary, you have guaranteed that all funds will go di- rectly to probate court and be subject to its long and costly system process.
• Not naming a contingent beneficiary. Frequently, people do not name an alternate or successor beneficiary in the event that the primary beneficiary dies. This results in the same outcome as above — you have guaranteed the probate process if your primary beneficiary is not alive at your death.
• Naming a minor beneficiary. Naming a minor as a ben- eficiary is very common but should never be done. Often, minor children are named on deferred comp, life insurance policies, and even on bank accounts as an alternate/succes- sor beneficiary if you are married, with your spouse named as your primary beneficiary. If you are single, a minor child might be listed as your primary beneficiary. The problem is that if you die when your child is still under age 18, all the proceeds of those accounts and policies will go to probate and stay in that system until your child reaches the age of majority. And as we all know, 18 is the age of majority, but it isn’t the age of maturity. Probate will release all remaining funds to the beneficiary at 18 years of age.
• Naming a beneficiary with a disability. Any person who has a legal disability is almost certainly receiving some form of public assistance, such as SSI or Medicaid. Receiving funds as a beneficiary would jeopardize those benefits, either by requiring reimbursement to the government or by reducing or eliminating the recipient’s public benefits. A word of cau- tion: Any nondisabled person listed as a beneficiary of yours can acquire a disability by accident or illness before your death, placing those funds at risk.
• Failing to keep beneficiary designations up to date. If you divorce, or if a beneficiary dies without changes being made, your ex-spouse will be legally entitled to all proceeds, or the deceased beneficiary’s proceeds will go to probate.
• Naming one beneficiary in families with multiple children.
Often, the oldest or most financially mature child is named as the sole beneficiary. The problem is that gift tax limits ap- ply to a distribution to other children or intended beneficia- ries, and your named beneficiary may die before distribu- tion or be involved in a lawsuit or divorce, putting the funds at risk.
drafted living trust that covers all the contingencies and un- certainties that I have discussed.
A revocable living trust is a written, legal document that al- lows you to privately and efficiently pass your assets (real prop- erty, bank accounts, stock, saving certificates, personal proper- ty, etc.) to your family, friends or charitable organizations after your death — outside of Probate Court.
• At the creation of your trust, all of your assets will be trans- ferred from your name and titled in your trust.
• You retain unlimited access to and full control of your assets during your lifetime, while you have your legal capacity.
• A revocable living trust allows you to appoint someone of your choice (as successor trustee) to manage your assets af- ter your death or during your incapacitation.
• It may be amended or revoked at any time as long as you are mentally competent.
• Your assets and belongings will be distributed privately and efficiently to your beneficiaries, under the terms that you have established within your trust. d
Tom Tuohy is the founder of Tuohy Law Offices and the FOP Ben- efits Plan. You can reach Tom at 312-559-8400.
TOM TUOHY
CHICAGO LODGE 7 ■ JANUARY 2018 25