When clients talk to us about their last wishes, they often tell us they want to make things easy for their heirs.
The last thing they want is for their loved ones to end up fighting over assets, or tied up in court for months, or jumping through expensive legal hoops.
And in fact, we do see situations where estates are subject to lengthy delays, often due to congested court systems and inexperienced estate administrators.
In one case reported to FINRA, the brokerage industry’s regulator, it took more than a year for beneficiaries at a big-name brokerage firm to access account information and successfully move their inherited assets into an account in their name.
“We are seeing a trend where there is a death of a parent and the surviving children are having a lot of difficulty getting the assets out of the firm,” said Susan Axelrod, head of regulatory operations at FINRA, during an interview with the Wall Street Journal’s Matthias Rieker.
But here’s the good news. Delays like this are relatively infrequent (or should be infrequent) and there are simple steps you can take to ensure your assets transfer smoothly to your heirs.
You probably know that by correctly filling out a beneficiary form, your IRA, Roth IRA, 401(k) and other retirement assets will bypass probate (the court-supervised estate process) and go directly to your heirs. (We’ll talk more about how to properly fill out those beneficiary forms in a future article. It’s not as easy as it looks.)
But you may not know that we can also help you add a beneficiary designation to your non-retirement brokerage account so that it passes directly to your heirs at your death, bypassing probate. This will speed up the distribution process, save money, and avoid lengthy delays where assets are in “investment limbo” for weeks or months.
To take possession of the assets, your heirs will normally need to produce only a death certificate and other minor paperwork.
There’s always a few caveats, so here they are:
These forms do not replace your attorney. Even if your assets, or most your assets, pass directly to heirs using a beneficiary form, you still need to have a Will, Durable Power of Attorney, and Medical Directives to cover all the bases and protect yourself in the event of disability or incapacity.
They’re not available in all states. While Florida and most other states permit you to add a beneficiary designation to your non-retirement brokerage account, some states do not. Ask your financial advisor or brokerage firm for details.
It’s free, and you can change your mind. It should be free to add a beneficiary designation at most brokers. You can change the form, and your heirs, whenever you want.
It needs to coordinate with your other legal arrangements. If not used correctly, these beneficiary plans can backfire and seriously mess up your estate plan. Brokerage firm Charles Schwab warns that “the Designated Beneficiary Plan will generally take precedence over any estate planning vehicles such as a will or trust.”
If you name your Aunt Tilly as sole beneficiary in your Will, but name Cousin George as beneficiary of your brokerage account, all your brokerage assets will go to Cousin George, potentially leaving 100% of nothing to Tilly. If this happens where kids are involved (and not just cousins and aunts), the results can tear apart a family.
That’s why when we talk with clients about adding these beneficiary forms to their account, we like to run it by their attorney first to make sure it doesn’t conflict with the overall estate plan.
Experience still counts. Even when the asset transfer process is streamlined, your heirs will have to make many complex decisions about how to invest their inheritance, update their own estate plan, stretch out IRAs, and minimize taxes. Good advice can help your gift go farther and make a positive impact on the lives of those you love.