by Bill Griffith Bill Griffith No Comments

Why a POD Designation on Your Brokerage Account Can Ruin Your Living Trust

You spent the time and money to create a revocable living trust. You carefully selected a successor trustee, decided how your assets should be distributed, and perhaps included special provisions to protect your children, provide for a loved one with special needs, or preserve family wealth for future generations.

But there may be one overlooked detail that undermines your entire estate plan: the beneficiary designation on your brokerage account.

Many investors add a Payable on Death (POD) or Transfer on Death (TOD) designation to an investment account because it seems simple. The account passes directly to a named beneficiary at death, often without the need for probate. That convenience can be appealing.

However, when an account is part of a broader living trust strategy, naming individuals directly as beneficiaries can create serious problems. The money may pass outside the trust, bypass carefully drafted instructions, and leave your family without the protections you intended to provide.

The issue is not that POD or TOD designations are always wrong. They can be useful estate planning tools when coordinated properly with a person’s overall plan. The problem arises when a beneficiary designation conflicts with the purpose of the living trust.

Let’s examine five important risks and why reviewing your brokerage account’s ownership and beneficiary designations deserves a place on your estate planning checklist.

1. Your Brokerage Account Could Bypass Your Living Trust Completely

A revocable living trust is designed to hold assets and distribute them according to the instructions you establish in the trust agreement. Those instructions can determine who receives your wealth, when distributions occur, and what protections apply to inherited assets.

But there is an important catch: having a living trust does not automatically mean every asset you own will be distributed according to its terms.

Certain financial accounts pass according to their beneficiary designations rather than through the owner’s will or the trust’s distribution provisions. A valid POD or TOD designation naming an individual generally directs the account to that beneficiary outside the trust.

This can happen even when your trust contains a detailed plan for distributing your entire estate.

How Does This Happen?

Imagine that you establish a revocable living trust with the following instructions:

  • Your two children will ultimately inherit your investment assets in equal shares.
  • Your children will receive distributions in stages rather than receiving their entire inheritances at once.
  • A successor trustee will manage each child’s inheritance until the child reaches a specified age.
  • If a child dies before you, that child’s share will pass to their descendants.

These provisions may reflect years of thoughtful planning.

Now imagine that you have a brokerage account worth $750,000 with a TOD designation naming your oldest child directly as the beneficiary.

When you die, that account will generally pass to the named beneficiary under the applicable beneficiary designation and governing law. The money does not automatically become trust property simply because you have an existing living trust.

The result? Your oldest child may receive the entire $750,000 outright, while your trust’s carefully drafted distribution schedule and protections may apply only to assets that actually pass into the trust.

The same problem can occur when a pour-over will is involved. A pour-over will generally directs certain assets remaining in your probate estate into your trust, but it does not ordinarily redirect an account that validly transfers to a designated beneficiary outside probate.

In other words, your trust may be well written, but it cannot automatically control assets that never become part of the trust.

Why This Matters

Trusts can provide much more than a simple transfer of wealth. Depending on how they are drafted, they can offer continuing management, structured distributions, and potential protection against beneficiaries’ creditors or other financial risks.

An outright beneficiary designation may eliminate those protections for the account being transferred.

The key lesson: Review not only whether you have a living trust, but also whether your brokerage accounts are titled and designated in a way that supports the trust’s purpose.

2. Minor or Incapacitated Beneficiaries May Face Unnecessary Complications

One of the most important advantages of a properly drafted trust is the ability to determine how assets will be managed when a beneficiary cannot manage them independently.

A direct POD or TOD designation can complicate matters when the named beneficiary is a minor or an adult who lacks the legal capacity to manage financial assets.

What Happens If Your Beneficiary Is a Minor?

Suppose you name your 15-year-old grandchild as the direct beneficiary of a $300,000 brokerage account.

Your intention may be to provide for the child’s future education, housing, and financial security. But a minor generally cannot independently control a substantial inheritance in the same way an adult can.

Depending on state law, the account’s terms, the amount involved, and the available legal arrangements, a court-appointed guardian of the property or another authorized arrangement may be necessary. In some circumstances, a custodial account under the applicable Uniform Transfers to Minors Act can provide an alternative.

These options have their own rules, costs, reporting obligations, and limits on when the child gains control of the assets.

The most important concern is that the distribution may not follow your intended schedule.

For example, you may have wanted the trustee to retain the money until your grandchild reaches age 25 and distribute funds earlier only for education, health, or other specified needs. A direct designation may not provide those same instructions or safeguards.

How a Trust Can Help

A properly drafted trust can establish a management structure before the inheritance occurs.

The trust might authorize the trustee to pay for educational expenses, healthcare, housing, and other appropriate needs while retaining the remaining funds until the beneficiary reaches a specified age.

You can also provide different rules for different beneficiaries based on their circumstances.

Instead of relying on a court to appoint someone to manage the inheritance after your death, the trust can identify the trustee and explain how the assets should be handled.

What If Your Beneficiary Is an Incapacitated Adult?

A similar concern arises when a named beneficiary is an adult with a disability or another condition that affects their ability to manage financial affairs.

An outright distribution may create the need for a legally authorized representative. Depending on the circumstances, a guardianship or conservatorship proceeding may be considered, although neither is automatically required in every case.

A properly structured trust can allow a trustee to manage the inherited funds and make appropriate distributions for the beneficiary’s needs without automatically placing the assets under the beneficiary’s direct control.

Specialized planning may also be necessary when the beneficiary receives means-tested government benefits.

The key lesson: If your intended beneficiaries are minors, have disabilities, or may need help managing money, an outright POD or TOD designation may not provide the oversight and protection your family needs.

3. POD and TOD Designations Can Create Serious Distribution Imbalances

A living trust can coordinate the distribution of your entire estate under one set of instructions. Individual beneficiary designations, however, can create separate distribution rules for each account.

That difference can produce unexpected results, particularly when investment accounts grow at different rates or beneficiaries’ circumstances change.

When One Account Grows Much Faster Than Another

Consider a parent with two children who wants each child to inherit an equal share of the family’s wealth.

The parent establishes a living trust that provides for equal distributions. The parent also maintains two investment accounts:

  • Brokerage Account A: $200,000, with a TOD designation naming Child A.
  • Brokerage Account B: $200,000, owned by the trust.

Several years later, a successful investment strategy causes Account A to grow to $900,000, while Account B grows to $250,000.

If the parent dies with those arrangements unchanged, Child A may receive the $900,000 account directly, while the trustee manages the $250,000 trust account under the trust’s terms.

Even if the trust says the children should inherit equally, that instruction may not govern the separately designated account.

The family could face a substantial imbalance between the inheritance the parent intended and the inheritance the account arrangements actually produce.

When a Beneficiary Dies Before the Account Owner

Another potential problem arises when a designated beneficiary dies before the account owner.

Your living trust may include a detailed plan explaining what happens next. Perhaps the deceased beneficiary’s share should pass to their children. Perhaps the surviving child should receive the share. Or perhaps the money should remain in trust for another family member.

But those trust provisions generally will not control an account that passes outside the trust.

The brokerage firm’s beneficiary form may contain contingent beneficiaries or a per stirpes provision directing assets to a deceased beneficiary’s descendants. Applicable state law may also provide a default outcome.

If neither the designation nor the governing law produces the result you intended, the assets may pass differently than your trust directs.

For example, if no designated beneficiary survives the account owner, the account may pass to the owner’s estate under applicable rules rather than automatically following the trust’s alternate-beneficiary provisions.

Why Coordinating Everything Matters

An estate plan should account for the combined value of all relevant assets, not just the accounts that happen to be titled in the trust’s name.

Your financial picture can change significantly over time. Investment performance, inheritances, gifts, business sales, and changes in family circumstances can all affect the relative value of different accounts.

A coordinated estate plan makes it easier to identify these changes and determine whether your account titles and beneficiary designations still reflect your intentions.

The key lesson: Your living trust can only carry out its distribution instructions for assets governed by those instructions. Separate beneficiary designations need to be reviewed as part of the same overall plan.

4. A POD Designation Does Nothing to Help If You Become Incapacitated

Estate planning is not just about what happens after death. It is also about ensuring that someone you trust can manage your financial affairs if you become unable to do so yourself.

This is an area where a POD or TOD designation and a revocable living trust serve very different purposes.

A Beneficiary Designation Only Operates at Death

Suppose you own a $600,000 brokerage account in your individual name and have named your daughter as the TOD beneficiary.

You later suffer a serious illness or injury that leaves you unable to manage your financial affairs.

Your daughter may be the person you trust to help, but her status as a TOD beneficiary does not give her the present authority to manage your account.

The designation is intended to determine who receives the account after your death. It does not, by itself, authorize the beneficiary to make investment decisions, pay your bills, or manage your assets during your lifetime.

A valid financial power of attorney may authorize an agent to act for you, subject to its terms and applicable law. However, the POD or TOD designation itself does not provide that authority.

How a Successor Trustee Can Help

If the brokerage account is properly owned by your revocable living trust, the trust agreement can authorize a successor trustee to step in when the required conditions for succession are met.

Depending on the trust’s terms, the successor trustee may then be able to manage the trust-owned investment account, oversee investments, pay authorized expenses, and use trust assets for your benefit.

This can reduce disruption during an already difficult period.

There is no need to wait for your death for the successor trustee to take over if the trust’s applicable succession provisions have been satisfied. The successor trustee’s authority and the steps required to establish incapacity depend on the trust documents and relevant law.

Of course, a living trust is not a substitute for every incapacity-planning document. A comprehensive plan commonly includes a durable financial power of attorney and appropriate healthcare documents as well.

Why This Risk Is Easy to Overlook

Investors often select POD or TOD designations because they are focused on simplifying the inheritance process. But a designation that works as intended at death does not address the possibility of incapacity before death.

The key lesson: A beneficiary designation is not an incapacity-management plan. Properly titling assets in a trust, together with appropriate powers of attorney and healthcare documents, can provide a more complete framework for protecting you and your family.

5. Your Trustee May Not Have Enough Cash to Pay Final Expenses and Taxes

A final concern involves liquidity.

When a person dies, their estate and trust may need funds for final income taxes, funeral expenses, professional fees, property expenses, and other administration costs. The specific obligations and which fiduciary must pay them depend on the circumstances and applicable law.

Problems can arise when most of the available cash and investments pass directly to named beneficiaries instead of remaining available to the estate or trust.

Consider This Scenario

Suppose you have a revocable living trust and a brokerage account holding nearly all your liquid assets.

You have designated your two children as equal TOD beneficiaries of that account. Your trust also provides for the distribution of your home and other property.

When you die, the brokerage account passes to your children under the beneficiary designation, subject to applicable law and the brokerage firm’s requirements.

Meanwhile, the person administering your estate or trust needs money to pay final bills, professional fees, taxes, or other expenses.

The fiduciary may discover that the trust has little available cash, even though the overall estate has substantial wealth.

Your trustee or personal representative may then need to identify other sources of funds, address the timing of payments, or determine whether beneficiaries or other assets can legally be required to contribute.

That can create avoidable administrative burdens for your family.

Why Account Ownership Matters

When an investment account is owned by the trust, the trustee generally administers that account according to the trust agreement and applicable law. The trustee’s authorized use of those funds may include paying appropriate trust expenses and carrying out the trust’s responsibilities.

By contrast, a direct beneficiary designation generally transfers the account to the named beneficiary rather than placing the account automatically under the trustee’s management.

This does not mean that assets passing outside the trust are necessarily beyond the reach of every estate creditor or that beneficiaries are always free of contribution obligations. Applicable law may provide otherwise.

The practical concern is that your fiduciary may not have immediate access to the liquidity needed to administer your affairs efficiently.

A well-coordinated plan considers which assets should be available for expenses and whether sufficient funds will remain accessible to the appropriate fiduciary.

The key lesson: Estate planning should address not only who inherits your assets, but also how your final expenses and administration obligations will be paid.

Should You Eliminate Every POD or TOD Designation?

Not necessarily.

POD and TOD designations can be appropriate in many circumstances. For some investors, they offer a straightforward way to transfer assets outside probate. They may also complement a living trust when the designation is deliberately structured to support the overall estate plan.

The critical issue is whether the designation matches your intentions.

For example, applicable law and brokerage procedures may permit you to name the trustee of your existing trust as the beneficiary of a TOD account. Under that arrangement, the account may pass to the trust at your death, allowing the trust’s distribution provisions to govern the inherited assets.

However, naming a trust as a TOD beneficiary is not necessarily the same as transferring ownership of the account into the trust during your lifetime.

That distinction matters.

An individually owned account with a TOD beneficiary generally remains outside the trust’s ownership and management during your lifetime. A properly trust-owned account, by contrast, is administered under the trust’s terms, including its applicable incapacity provisions.

Whether an account should be retitled in the trust’s name or retain a beneficiary designation depends on the type of account, tax considerations, brokerage requirements, the trust’s terms, and your overall estate plan. Retirement accounts, for example, raise additional tax and distribution issues that should be evaluated separately.

There is no single approach that is right for every account or every family.

The goal is to ensure that your account arrangements work together instead of unintentionally defeating the plan you created.

How to Review Your Brokerage Accounts and Living Trust

If you have already established a revocable living trust, take time to review how your investment accounts are actually registered.

Start by gathering your latest brokerage statements and beneficiary designation confirmations. Check whether each account is individually owned, trust-owned, or registered with a POD or TOD beneficiary designation.

Next, compare those records with your trust agreement and the estate planning documents prepared by your attorney.

Ask yourself the following questions:

  • Does each account pass according to the distribution plan I intended?
  • Are my beneficiaries supposed to receive their inheritances outright, or should their assets remain in trust?
  • Do my designations account for minor beneficiaries, beneficiaries who need financial management assistance, and beneficiaries who may die before me?
  • Have my account values changed enough to disrupt my intended distribution among family members?
  • Will the appropriate fiduciary have access to enough liquid assets to administer my estate and trust?
  • Have I addressed incapacity through appropriate trust provisions and a durable financial power of attorney?

Do not assume that having a signed trust agreement means your assets are properly coordinated. The way each account is titled and the terms of each beneficiary designation are essential parts of the plan.

Your attorney can review the applicable law, account documents, and tax considerations to help determine whether an account should be retitled in the trust’s name, retain a beneficiary designation, or use another appropriate arrangement.

Conclusion: Make Sure Your Brokerage Accounts Support Your Living Trust

Creating a revocable living trust is an important step toward protecting your family and controlling how your wealth is managed and distributed.

But a trust is only one part of a complete estate plan. If your brokerage accounts contain POD or TOD designations that send assets directly to individuals, those designations may conflict with the instructions and protections you carefully put in place.

The consequences can include distributions that bypass your trust, complications involving minor or incapacitated beneficiaries, unexpected imbalances among heirs, limited access to investments during incapacity, and cash-flow problems when final expenses must be paid.

These pitfalls of POD or TOD Accounts are often preventable with proper planning and periodic reviews.

Do not leave your family’s financial future to an outdated beneficiary form or an account arrangement that no longer reflects your wishes.

Review your brokerage account titles and beneficiary designations with your CFP® professional. Confirm that your accounts, trust agreement, will, and incapacity-planning documents work together to accomplish the goals you actually have for your family.

A few careful adjustments today can help prevent confusion, expense, and unintended consequences for the people you want to protect most.

by Bill Griffith Bill Griffith No Comments

When to Update Beneficiary Forms

A good time to review and update your beneficiary forms is near the end of the year or after a significant life event.

Beneficiary Designations

A beneficiary is typically a person named or designated to receive proceeds from a life insurance policy or benefits from a retirement plan or IRA after the account owner or insured dies.

If you are contributing to a 401 (k) or 403 (b) plan at work or other retirement plan, such as a traditional or Roth IRA, then you may remember choosing a beneficiary when you enrolled in the plan.

But over the years, many things can happen in life that might require changes to your beneficiary designations, such as a marriage, divorce, birth of children, or death.

Spouse Versus Non-Spouse Beneficiary

Typically, a married couple will name each other as the primary beneficiary of their life insurance policy and retirement plans.

After the first spouse dies, the survivor should change the beneficiary on their life insurance policy and retirement accounts as soon as possible. It’s easy to forget about this. After the funeral, everyone goes back to work and living life and sometimes these things don’t get done.

Know the Rules

Different rules apply to spouses and non-spouse beneficiaries of individual retirement accounts (IRAs). The SECURE Act and SECURE Act 2.0 changed the rules for taking distributions from IRAs. The rules impact spouses and non-spouse beneficiaries differently.

Also, there is a deadline for splitting inherited IRAs if there is more than one designated beneficiary.

There are many choices when you inherit an IRA. Making a mistake when inheriting assets could trigger a huge tax bill and cause you to lose out on an opportunity for many years of tax deferred growth.

Marriage, Death, or Divorce

Naming a beneficiary is not something that you should do once and forget about. In fact, anything that affects your future financial security and that of your family is something that you should review and update regularly.

Imagine a surviving spouse finding out that a former spouse is still named as the primary beneficiary of a decedents 401 (k) plan. The consequences could potentially ruin a survivors’ retirement plan, especially if it was a sizable account.

Unfortunately, this type of thing happens more often than it should. Don’t let it happen to you. Changing the beneficiary after divorce will ensure that a life insurance benefit from a company plan will be paid out to the person you desire.

Working with a CFP® practitioner

If you are working with a CFP® practitioner, he or she should keep copies of your beneficiary forms on file and review them with you at least once each year and/or after significant life events.

If you are not working with a CFP® practitioner, contact us today and we will take care of this for.

Better yet, find out if your overall retirement and estate plan is on solid ground and sign up with us online.

by Bill Griffith Bill Griffith No Comments

Financial Planning After a Family Member Dies

Financial planning is important all through life but even more so after a family member dies. Having someone you trust can help you through the process and relieve stress.

After the Funeral

Dealing with the death of a loved one is stressful enough but not knowing what to do with Social Security, insurance policies, wills or trusts, ongoing bills and living expenses, and transfers of accounts and funds from financial institutions to beneficiaries poses an additional burden on a family.

Did you know there is over twenty-one things to consider doing in just the first month after the funeral?

Most people know about contacting the Social Security Administration and ordering certified copies of the death certificate. But few people know what to do after they receive the certified copies.

In addition to taking care of everything for your loved one, you might also want to seek advice from a Certified Financial Planner® practitioner and consider creating or updating your own financial plan.

This is especially important if you are the spouse or other beneficiary.

Avoid Mistakes

Making a mistake when inheriting assets could trigger a huge tax bill and cause you to lose out on an opportunity for many years of tax deferred growth.

Mistakes can happen even before a loved one dies when trying to retitle real estate and other property to avoid the probate process. If done incorrectly, you could potentially miss out on significant tax benefits.

Benefits of Financial Planning

Financial planning is a 7 step collaborative process of outlining how your income, savings, investments, and other assets can work to help meet your goals.

The cost of hiring a Certified Financial Planner® practitioner may be less than you think. For example, our One-Month Starter Package is $500. This is a good way for you to get started working with a Certified Financial Planner® practitioner. We’ll talk over the phone or meet in person one or more times over the course of one month to answer your questions, discuss your situation, and propose recommendations.

For example, you may have questions like those listed below:

  • How do I transfer and title assets that I just inherited?
  • Do I have enough assets to last in retirement?
  • I’m interested in moving. Can I make this happen?
  • How can I take advantage of Roth conversions?
  • How can I save for my child’s education?
  • How should I pay down my debt?
  • Do I have enough insurance if I were to pass away?

After we’ve decided upon a course of action, we’re available to help you implement your decisions and answer follow-up questions. After the first month, you can decide if you want to continue with an ongoing financial planning relationship.

For those desiring a continuing relationship where we can help implement your plan and monitor your progress over time, our ongoing financial planning fee is $400.00 per month.

                                             Get started today.  

by Bill Griffith Bill Griffith No Comments

Updating Your Power of Attorney

Updating your Power of Attorney is something that you should consider doing if there have been changes in your life or to Pennsylvania law.

If you set up your estate plan through our firm, your Living Trust Package includes one set of state-specific ancillary documents per person.

The following ancillary documents are included in your trust binder:

  • Durable Power of Attorney for Assets
  • Durable Power of Attorney for Healthcare or Advance Directive
  • Living Will
  • Nomination of Conservator or Guardian

We recommend that people review their estate plan, which includes their ancillary documents, every five years to determine whether one or more of their powers of attorney should be updated based on changes in the law, their life, or other circumstances.

Life can be very unpredictable; you never know when something might happen. A sudden health emergency can happen anytime without warning and require immediate action.

Serious emergencies can upend a person’s entire life in a matter of days. We all know of someone who was living at home one day and then, due to a sudden emergency that caused a subsequent disability or incapacitation, went directly from the hospital to the assisted living/nursing home facility.

In the event of an emergency, a trusted family member or friend who is your appointed Attorney will then be able to act on your behalf. But, if you established your trust years ago, the person you named as the Successor Trustee of your Revocable Living Trust (RLT) and/or the appointed Attorney of your POA’s may no longer be available.

If you recently updated your Durable Power of Attorney for Healthcare or Advance Directive, the appointed Attorney will be able to make important and sometimes life-saving decisions on your behalf.

By reviewing your estate plan, you will be prepared for such an occurrence by deciding when the power granted to the appointed Attorney of your POA for Healthcare goes into effect.

For example, if you initialed the box that says, “This power shall not be affected by my subsequent disability or incapacity,” your appointed Attorney will be able to make decisions regarding your healthcare and personal finances immediately.

Due to the cost of long-term care (LTC), the Successor Trustee may also need to make decisions about your assets currently titled in the name of your Revocable Living Trust.

But what about assets NOT titled in the name of the trust? The Durable Power of Attorney for Assets “may” apply to assets NOT titled in the name of the trust. It is important to know what documents will be needed when the time comes. Having updated POA’s will make the process so much easier. For instance, when it comes to signing a real estate listing agreement, agreement of sale, and a deed, will the Successor Trustee be required to provide the Abstract of Trust along with proof showing that he or she is now the Successor Trustee? Or will the appointed Attorney be required to provide the Durable Power of Attorney for Assets?

Matters can be complicated when it is unclear whether a person may or may not still be able to serve as the Trustee of the trust. For example, what if a person becomes disabled, but is still competent?

The trust might state that, “Upon the death, resignation, disappearance, or incompetency of the Original Trustee, or if for any reason the Original Trustee is unable to serve, or to continue to serve as Trustee hereunder, the Trustor nominates and appoints someone to take over and serve as Successor Trustee of the Trust without the approval of any court.”

These are all important questions that should get answered sooner rather than later. By being proactive and getting your questions answered ahead of time, you will know whether the Successor Trustee can act automatically by virtue of the language in the Trust, or if anything will be needed prior to taking over as the Successor Trustee, such as a letter from a doctor.

Now that you know why reviewing and updating your Power of Attorney is so important, consider taking the time to update your own plans, especially if it has been over five years since setting up your estate plan.

by Bill Griffith Bill Griffith No Comments

COVID-19 Update

Over the last nine months, we have received many calls from people wanting to know if and how they can meet with us to pre-plan for their funeral or cremation, set up a Living Trust, and protect their home and life savings from unanticipated long-term care expenses. Maybe you are wondering the same thing.

We wanted to keep our community, especially those whose families we have been honored to serve, informed about how we have adjusted to continue to help people prepare for and feel more reassured about the future.

We wanted to let you know that yes, you can still work with us to ensure that your wishes for funeral arrangements are documented ahead of time.  Despite the ongoing changes that we are all facing, we make it easy and safe for you to plan for your funeral and cremation.

Whether you want to eliminate the costs and delays of probate to ensure that your loved ones will receive their inheritance promptly or protect your home and life savings from unanticipated long-term care expenses, we can help you organize your financial affairs to ensure your long-term security and independence.

Though we are taking extra precautions with respect to physical distancing, masking, and sanitizing for in-person meetings, we are also available to work with you remotely, either via telephone, on the web, or via email.

We can still help you plan so that everything is taken care of no matter how you prefer to meet with us.

For example, our new cremation center is the premier online cremation resource for families choosing cremation services in Pittsburgh, PA, and surrounding communities.  You can choose the cremation package and merchandise that you prefer at your convenience and in the comfort of your own home.  You can make your own selections and provide the required biographical information entirely online. 

If you would like to eliminate anxiety and uncertainty over your affairs during this challenging time and make things easier for those you love, please schedule an appointment today. 

We can help you organize your financial affairs to ensure your long-term security and independence.

It’s all about your future™

by Bill Griffith Bill Griffith No Comments

Required Minimum Distribution (RMD) After Death

What is the required minimum distribution (RMD) that must be taken if an IRA owner dies on or after the required beginning date?

For the purposes of this article, we will be discussing traditional IRAs.  More specifically, we will be discussing the required minimum distribution (RMD) that must be taken for the year that an IRA owner dies.

If your loved one passed away in 2019, you will need to know what the options are when inheriting an IRA.

Required Beginning Date

First, what is the required beginning date?  Any discussion about retirement topics or IRAs typically includes a reference to the required beginning date. 

The required beginning date is simply the deadline for taking the first required minimum distribution (RMD).  The deadline is April 1 of the year following the year that you become age 70 ½.

For example, an IRA owner who turned 70 in February 2017 was 70 ½ in 2017.  The required beginning date will be April 1, 2018.  An IRA owner who turned 70 in November 2017 did not reach 70 ½ until 2018.  The required beginning date was April 1, 2019.

If IRA Owner Dies on or After the Required Beginning Date

An IRA owner who dies after the required beginning date should have been taking RMDs.  If not, he or she would have been subject to a 50% penalty tax on the amount not withdrawn.

A required minimum distribution must also be taken for the year of death just as if the IRA owner was still living.  The questions are, how is the RMD calculated and who must take it?

Calculating the RMD

The RMD for the year of death is calculated the same as if the IRA owner was still living.  In most cases, the Uniform Lifetime Table is used unless the beneficiary is a spouse and more than 10 years younger than the IRA owner.

For example, the RMD for a person who dies in 2019 at the age of 72 would be calculated by using a distribution period of 25.6.   

Who Takes the Required Minimum Distribution?

It is very important to know who must take the RMD for the year of death.  This depends on whether the IRA owner already took the RMD in the year of his or her death.  If the IRA owner did not take the RMD in the year of death, then the beneficiary must take it. 

For example, if your spouse died in 2019 before taking the RMD, then you will take the RMD if you are the named beneficiary.

If you are the named beneficiary of your parent’s IRA, then you must take the RMD for the year of death.

IRA Rules Can Be Confusing

There are many rules regarding IRAs. Sometimes, the rules and deadlines can be confusing. 

Hopefully, you now have a better understanding of the rule regarding the required minimum distribution (RMD) that must be taken if an IRA owner dies on or after the required beginning date.

As always, do not sign any beneficiary claim forms until you fully understand the company’s contractual and/or IRS tax ramifications.  A mistake could trigger a huge tax penalty. And make sure that you contact your advisor (estate attorney, CPA, CFP®) for professional advice.

by Bill Griffith Bill Griffith No Comments

Finding Unclaimed Money and Property

Finding unclaimed money and property can be daunting and very time consuming. Save yourself time and potential losses in value by knowing when escheatment occurs.

According to the state treasurer, one in ten Pennsylvanians has unclaimed property that can be applied for. While more and more residents are becoming aware of the process of searching for unclaimed property, the process of finding unclaimed money and property can be daunting and very time consuming.

Unclaimed Property Search

Since we regularly help people with claims paperwork, we know what the process entails.  The claims process begins with a search, requesting a claim form, and furnishing documents such as death certificates, affidavits, proof of address, POA documents, and other evidentiary documents requested by the Bureau of Unclaimed Property.

The department then reviews claims documents, which can take months or even years to complete.

Property Escheated to the State

Though it is possible to re-claim property that has been escheated (property deemed lost, abandoned or unclaimed and then turned over) to the state, it is important to try to understand when escheatment occurs to avoid having to go through this process in the first place.  This saves you not only time, but also from potential losses in value that might occur as a result of escheatment.

Holders of property, such as financial institutions, are required to send due diligence notifications to the owners of any property before escheating it.

Holders of property subject to escheatment are bound by the state’s rules regarding dormancy periods and must turn over any “abandoned” property to the state after a specified period.  In Pennsylvania, the dormancy period is most often 3 years, but can vary based on the type of property (e.g. 2 years for wages or commissions, 7 years for money orders).

For example, suppose you have stock certificates in a safe.  If you move to another house and forget to notify your stock transfer agent, it is possible that your stock transfer agent might lose contact with you.  If the stocks (which are generally sold immediately, often at a loss) are turned over to the state after the dormancy period, you would have to go through the process of filing a claim for the value of the stocks when they were sold. This is a waste of time and could cost you any gains that you may have earned had the stocks not been escheated.

Abandoned Property

The same scenario can play out if a financial institution such as a bank has not contacted you for several years.  If they never receive updated contact information and mail is being returned to them, an account may be deemed lost, or a safe-deposit box considered abandoned, at which point the contents would be escheated to the state. This scenario is particularly concerning with priceless tangible property kept in a safe deposit box, which the state will liquidate after three years, rendering it impossible to recover.

Keep Your Estate Planning Up to Date

It is important as a part of your estate planning process to keep a list of all financial institutions with whom you do business, including banks, brokers, transfer agents and insurance companies. Review this list and update it regularly (at least once per year) and include it with your other important estate planning documents such as a living trust or a will so that your family members will know where to locate it when it is needed.

When compiling this list, take the time to reach out to the institutions that you don’t deal with regularly to make sure that they have your current address and telephone number. It is wise to note the last time that you’ve reached out to each institution, so that you can remember to touch base every year or so.

Protect Your Assets From Being Escheated

Remember that while your financial institutions are required to perform due diligence efforts to contact you before escheatment occurs, they are still required by law to report abandoned property. 

Keeping your accounts active by updating your contact information, making a transaction, logging in to online banking services, or even calling customer service, will help you protect your assets and prevent future headaches and loss that can occur when assets are turned over to the state.

Finding unclaimed money and property can be daunting and very time consuming. Save yourself time now and potential losses in the future by knowing when escheatment occurs and how to prevent your property from being deemed lost, abandoned or unclaimed and then turned over to the state.

by Bill Griffith Bill Griffith No Comments

Reviewing Your Estate Plan

Reviewing your estate plan periodically will ensure that your Revocable Living Trust and other estate planning documents are properly aligned with your most important goals.

Are you confident that your estate plan is designed properly? Do you know how your estate will pass to your beneficiaries?

If not, you can gain a better understanding of how your estate plan is designed and the level of stress that your loved ones may incur if something where to happen to you.

One of the main goals of estate planning, for many people, is to minimize the burden of estate settlement.  One way of minimizing the burden of estate settlement is by avoiding probate.  One way of avoiding probate is with a living trust.

How Does a Living Trust Avoid Probate?

After a living trust is created for our clients, we help them transfer the title of their assets to their trust.  Although the title of their assets has been transferred to their trust, they still control the living trust during their lifetime.  As the Trustee, they still manage their assets for their own benefit during their lifetime.  They can still use their assets just as they did before they set up their trust.

Since their trust owns the assets, and not them personally, their estate does not have to go through the probate process when they die.

Funding a Living Trust

Transferring the title of assets to a living trust is really a simple process.  It is called funding the trust.  To minimize the burden of estate settlement by avoiding the probate process, the Revocable Living Trust must be funded properly.

By reviewing your estate plan periodically, you can be sure that your living trust is properly funded upfront to avoid the unintentional expense of probate.

Changes in Personal Circumstances

Another reason for reviewing your estate plan is to account for changing laws and changes in personal circumstances.

Do Your Powers of Attorney Documents Need Updated?

Every so often, the state will change the laws for the Durable Power of Attorney.  In addition to changing laws, some financial institutions may not accept a POA that was drafted many years ago.

The cost for updating powers of attorney and other ancillary estate planning documents is minimal.

It is highly recommended that people review their estate plan at least once each year to make sure that their estate plan remains current and to ensure that any new assets were properly titled in the name of the trust.

An even better and easier way to keep on top or your estate plan is by using our interactive estate planning program. You’ll be able to keep your information up to date and allow other authorized users, such as your child, to view your Pre-Paid Funeral Expenses, your legal and other documents right online.

To login for the first time to begin an estate plan, simply click My Estate Plan at the top of the screen. We’ll send you a separate email with a link to complete an interactive questionnaire.

by Bill Griffith Bill Griffith No Comments

Living Trust Can Avoid Probate

A living trust can avoid probate and ensure that your assets will pass to the beneficiaries you choose, and in the manner that you want.

A trust can be a fundamental part of planning for the future.  Trusts can help people avoid probate, unnecessary taxes, put their wealth to use in exactly the way they wish, accumulate assets for retirement or their beneficiaries, and much more.

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