10 Mistakes to Avoid When Retitling Assets and Naming Beneficiaries

Hiring a Minnesota estate planning lawyer to draft legal documents to provide for your heirs is only the first step to ensure that your property is distributed as you desire after your death. You still need to ensure that your property is titled in such a way as to take full advantage of your Will and/or Trust.

And, while you’re at it, review your beneficiary designations because some assets override any language in your Will or Trust documents and pass to whomever you named as the beneficiary. For example, life insurance proceeds and retirement benefits are paid to your designated beneficiary. Similarly, bank accounts designated as Payable on Death (also known as P.O.D. accounts), and securities accounts designated as Transfer on Death (also known as T.O.D. accounts) also transfer to whomever you named as beneficiaries.

Here is a list of 10 mistakes that too often spoil your best-laid plans:

Mistake #1: Holding real estate, or more than $50,000 in assets, in your individual name. Either holding will cause your estate to go through probate in Minnesota at your death. The disadvantages of going through probate are the expense, the time delays, the hassle and the lack of privacy, given that probate records are public documents. Solution: Hold most of your assets, including your real estate, in your Trust, or in joint tenancy, so as to escape the probate requirement.

Mistake #2: Designating “my estate” as the beneficiary. This designation will subject the asset to the probate process. Similarly, if you fail to name a beneficiary on your life insurance policy, for example, the proceeds will be paid to your estate. Solution: Designate the name of an individual or your Trust as the beneficiary.

Mistake #3: Designating a minor child as a beneficiary. Minors (under age 18) can’t convey or mortgage real estate under most circumstances under Minnesota law. Even if your child is now a young adult, he or she may not be mature enough to properly use the windfall from an inheritance. Solution: Set up a Trust to enable your hand-picked trustee to manage your assets for the benefit of your children while they are young, and to distribute the assets to them at more mature ages according to a timetable that you specify in your Trust document.

Mistake #4: Transferring ownership of an Individual Retirement Account (IRA) to a Trust. If you transfer the title of an IRA to a Trust, the transfer will be counted as a withdrawal and you’ll have to pay a penalty. Solution: Name your Trust as a beneficiary of the IRA, which is not the same as transferring current title to the Trust. Most retirement plans require you to name your spouse as the primary beneficiary. Therefore, you would name your Trust as the contingent beneficiary.

Mistake #5: Forgetting to transfer personal property. Personal property includes your household furniture, clothing, cars, boats, jewelry and “stuff”. If your personal property adds up to more than $50,000, it can trigger probate in Minnesota. Solution: Title can be easily transferred to your Trust with a simple Bill of Sale document, which states that you are transferring your personal property to your Trust.

Mistake #6: Naming a second spouse as your joint tenant when you have children from a first marriage whom you wish to inherit the property. If you die before your second spouse, and the asset in question is held in joint tenancy with your second spouse, then your spouse will have sole ownership of the asset upon your death. If the second spouse desires, he or she can leave this asset to his or her friends or children from his or her first marriage and cut your children out entirely. Solution: If you instead title the real estate in the name of your Trust, certain Trust assets will be used to provide for your second spouse’s support while your children inherit the family property.

Mistake #7: Naming one child as a joint tenant as a matter of convenience.  Sometimes an aging parent decides to name one child as a joint tenant on a home or bank account so that the child can more readily assist the elderly parent. But joint tenancy means that the child so named inherits the entire asset regardless of any stated desire in a Will that all children inherit equally. Or, if the child named as the joint tenant owes creditors money or gets divorced, the assets in the joint account may be claimed by the creditors or divorcing spouse. Solution: A durable power of attorney document gives the designated person the ability to assist the elderly parent with financial matters, but not to automatically inherit or subject the parent’s bank account to claims from creditors or ex-spouses.

Mistake #8: Having Payable on Death (P.O.D.) or Transfer on Death (T.O.D.) designations on accounts when you want a different distribution of those assets. P.O.D. and T.O.D. designations trump the language in your Will or Trust. Solution: If you want the assets in these accounts to be distributed equally to your children or to generally follow the distribution instructions in your Will and/or Trust rather than go to the person named as the P.O.D. or T.O.D. beneficiary, then don’t set up P.O.D. and T.O.D. accounts.

Mistake #9: Failing to review the beneficiary designation records of the life insurance companies and retirement plan administrators. Mistakes are made and documents are lost. Solution: Obtain a written confirmation of your beneficiary designation from the respective companies and check it for accuracy. If there is an error, get it corrected. Keep copies in a file that is readily accessible by your personal representative upon your death.

Mistake #10: Forgetting to change your beneficiaries or heirs when situations, or your desires, change. Your ex-spouse is automatically written out of your Will when your divorce is finalized, but your ex-spouse could inherit certain assets if you fail to remove his or her name as the beneficiary. Solution: Check your beneficiary designations on your life insurance, retirement assets, annuity assets, payable-on-death accounts and transfer-on-death accounts periodically to determine if you need to change any of the persons named as your beneficiaries. 

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Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.

Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305  952-649-9771  www.bwittenburglaw.com  bonnie@bwittenburglaw.com