A Will Is a Key Component of Any Estate Plan, but It’s Not Enough, Continued

Another reason a will may not be enough on its own is that many assets can pass outside of the will.

At The Lansky Law Firm, we help families understand how wills, trusts, and beneficiary designations work together as part of a coordinated estate plan.

Life insurance policies, annuities, retirement accounts such as IRAs and 401(k)s, payable-on-death or transfer-on-death accounts, and certain jointly owned property may pass directly to a named beneficiary or surviving owner. In those situations, the applicable beneficiary designation or ownership arrangement generally determines who receives the asset rather than the terms of the will.

For retirement accounts, the account owner designates beneficiaries according to the procedures established by the IRA custodian or retirement plan. Those beneficiary designations can have significant estate planning and tax consequences, particularly because inherited retirement accounts are subject to specific federal distribution rules.

This is one reason beneficiary designations should be reviewed periodically and coordinated with the rest of an estate plan. A beneficiary designation completed many years ago may no longer reflect your wishes following a marriage, divorce, birth, death, or other significant change in your family or financial circumstances.

The Role of Trusts in an Estate Plan

Many families also use trusts as part of their estate planning.

A revocable living trust can provide flexibility in managing assets during your lifetime and directing how those assets are administered and distributed after your death. It may also provide a way for a successor trustee to manage assets held in the trust if you become incapacitated.

Assets properly titled in a revocable living trust generally do not have to pass through probate when the person who created the trust dies. However, creating a trust by itself does not automatically avoid probate. Assets that were never transferred to the trust and do not otherwise pass outside probate may still require probate administration.

A revocable living trust also should not be viewed as automatic creditor protection. Because the person creating a typical revocable trust generally retains control over the trust assets during life, those assets ordinarily remain available to that person's creditors under applicable law.

Different considerations can apply to assets held in trust for beneficiaries after the person creating the trust dies. Depending on the terms of the trust and applicable state law, keeping an inheritance in trust rather than distributing it outright may provide a degree of protection from a beneficiary's creditors or poor financial decisions. The level of protection depends on the type of trust, its terms, and the law that applies.

Trusts may also be useful when a beneficiary is young, has difficulty managing money, has special circumstances, or when the person creating the estate plan wants to control how and when an inheritance is distributed.

Bringing the Pieces of Your Estate Plan Together

The bottom line is that a will remains an important estate planning document, but it is rarely the only consideration.

A comprehensive estate plan may include a will, powers of attorney, health care directives, beneficiary designations, trusts, and other planning strategies depending on your assets, family circumstances, and goals.

Just as important, these documents and beneficiary arrangements should work together. Periodically reviewing your estate plan can help identify outdated beneficiary designations, assets that have not been properly coordinated with a trust, and other changes that may affect how your wishes are carried out.

Estate planning is not just about having the right documents. It is also about making sure those documents work together to carry out your wishes. At The Lansky Law Firm, we help families review wills, trusts, beneficiary designations, and other estate planning arrangements to ensure their plans reflect their current needs and goals.

If your family circumstances have changed or you have not reviewed your estate plan recently, now may be the time to take another look.

Contact The Lansky Law Firm today to register for an upcoming estate planning workshop or schedule a consultation to review your existing plan and prepare for your family's future.

Call (901) 767-7006 or visit www.lanskylawfirm.com to get started.

The Lansky Law Firm 6800 Poplar Avenue, Suite 225 Memphis, TN 38138