When I’m talking with my clients about how often to review their estate planning documents, I always recommend they review all financial accounts; how they are titled and who are the listed beneficiaries. A good habit to get into is to do an annual review. I personally like to do mine at the beginning of each year, but it really does not matter at what point in the year you do it.
The most overlooked financial consideration can be keeping current with the named beneficiaries. Commonly known as the “pay on death” or “Transfer Upon Death” designation, the named beneficiaries on financial instruments are essential. When you or a family member dies, this alone can be the biggest help, or detriment, for your spouse or executor of your estate.
If, when you pass, you own financial accounts that have no named beneficiaries, your heirs will have to go through the costly and time consuming probate process. Even if you spend time and money completing a trust-based estate plan in order to avoid probate, your estate can still end up in probate court if you do not complete your trust funding process. This means you have properly named beneficiaries on all of your financial accounts, either by changing the beneficiary to your trust, or if advisable, individual people.
To avoid common trust funding mistakes, I recommend doing the following if you are married with a trust-based estate plan: If you are married and both spouses are listed as primary joint account holders, the trust should named the primary beneficiary. That way once the second of you dies, the funds in that financial account will be transferred into the trust.
If you are married and only one spouse is listed as the primary account holder, the other spouse should be listed as the primary beneficiary and then the trust should be listed as the contingent beneficiary.
Obviously, clients can have different intentions for different accounts. If you have specific wishes for each account you own, just make sure the named beneficiaries are to who you want to receive that money.
I hope this clears up some common trust funding mistakes. Far too often I see clients who completed their estate plan but never updated the beneficiaries on their financial accounts to align with their plan. You have to list beneficiaries on your accounts and do it appropriately!