In my two previous posts, I discussed the value of comprehensive estate planning even if you have a small estate or you want everything to go to your spouse. In this last installment, I will address the most common reason I hear from clients who say they don’t need an estate plan, which is, “I don’t need an estate plan because I have everything in beneficiary designation accounts.”
People often try to create a “do-it-yourself” estate plan by creating beneficiary designations on all of their assets. This is typically done by titling assets with another person “with right of survivorship,” holding assets jointly, or creating “payable on death” (POD) or “transfer on death” (TOD) accounts. I caution against using this approach for several reasons.
In California, you can have $150,000 in total assets (subject to a few exclusions) outside of a trust or without beneficiary designations without triggering a probate. Additionally, the threshold amount for transferring real property without a probate in California is $50,000. With TOD/POD accounts, if the designated beneficiary is deceased at your death and if no successor is named, the account goes back to your estate and counts toward the $150,000. The same is true if you are the surviving owner of property that had been owned “with right of survivorship,” which often happens with real property. If enough beneficiary designations fail or were never created, it is possible that a probate will be required.
Second, without a will, if any asset lacks a beneficiary or the beneficiary you have named does not survive you, that asset will be distributed according to the intestacy system. With an estate plan in place, you can name your “back-up” beneficiaries for any of these assets and avoid this default option.
Finally, a common problem is that people forget to change their beneficiary designations as time goes on, particularly if they have many accounts. It is not uncommon to have ex-spouses or estranged relatives named as beneficiaries because a person either forgot who the named beneficiary was or forgot about the account entirely. Beneficiary designation accounts require consistent monitoring to make sure that you have (a) named the correct beneficiaries and (b) the financial institution has processed your beneficiary designation forms correctly.
For these reasons, even the simplest estate plan is a worthwhile investment at any age. A proper plan will make provisions for managing your affairs if you become incapacitated and provide for an orderly distribution of assets upon your death, and it will fully reflect your wishes, rather than the judgment of a court or the California Probate Code.