Basics of Estate Planning: Coordination of the Estate Plan

This is another in a series of blogs on the basics of estate planning. This week, we’ll look at coordination of the estate plan.

Perhaps the most important (and most often overlooked) aspect of an estate plan is the coordination of different vehicles.

Let’s look at a couple and their assets.

Bob and Mary are married and have two children.

Bob has the following assets:

$100,000 in a CD at Bank of America
$300,000 in a brokerage account at TD Ameritrade
$150,000 ½ a house held in joint tenancy with Mary
$100,000 in a 401k with his employer
$250,000 face value life insurance policy with Metropolitan Life

Mary has the following assets:

$200,000 in an IRA at Fidelity
$400,000 in a brokerage account at Fidelity
$150,000 ½ a house held in joint tenancy with Bob

Bob has a will and designates who he wants to get all his assets. It’s important to note that it may not control the disposition of any of those assets!

Mary has a will and designates who she wants to get all her assets. Again, Mary’s will may not control the disposition of any of her assets.

The house held in joint tenancy will pass by operation of law to the survivor of them. This will not surprise you. So, even if their wills left their portions of the house to different people, it would not control for the first spouse to die. Of course, the survivor would have the entire house and it would no longer be in joint tenancy. However, the house could have a beneficiary deed / transfer on death designation which similarly would remove the house from the estate of the survivor and circumvent the will of the survivor.

The IRA and 401k each have a beneficiary designation. The assets in those accounts will go according to those designations, notwithstanding the will saying otherwise. Similarly, the life insurance will have a beneficiary designation which will control the disposition upon the death of the insured. The insured may be the owner, though they need not be.

Finally, the brokerage accounts and the CD may also have beneficiary designations. If so, they also would be controlled by those designations rather than wills.

So, it’s important to think about beneficiary designation and coordinate those with the client’s will or trust when planning the estate. You might think that the person designated in the will or trust will get the assets. But, that may not be the case.

The easiest way to coordinate the state plan is to have all of the assets go to one vehicle, like the revocable trust. So, the brokerage accounts and CDs could be owned by the trust (and not have beneficiary designations). The IRA and 401k could designate the trust or portions of the trust as the beneficiary. The house could be owned by the trust. The will could pour over into the trust. The trust could then divide up the estate as desired. Estate planning by beneficiary designation can work, but it often does not work as intended as asset values fluctuate. I’ll look deeper into how beneficiary designations can result in a poor plan in next week’s blog
In upcoming blogs, I’ll discuss more on the basics of estate planning.

Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com