Wednesday, November 4, 2020

Designating Your Beneficiaries


It matters whether you designate a beneficiary or not.

When you die, you're dead, so you likely don't care what happens to the living, except if they are loved ones.  You want your spouse to be supported, and you don't want to leave a financial mess for someone else to clean up.  Designating beneficiaries for your investment accounts, life insurance and whatnot, is important, lest you create unnecessary paperwork and tax problems for the next of kin.

With life insurance and 401(k) and IRA plans, usually the monies are released to the beneficiary without going through probate.   This is important, as if you leave an insolvent estate, and no beneficiary is designated, those monies will go to pay off those debts.  Even if your estate is solvent, if no beneficiary is present, the money goes into your estate general fund, where it may be subject to probate and possibly taxes.

When I die, there will be very little to probate.  My investment accounts and life insurance list Mr. See as beneficiary.  He gets this money directly, once a certified copy of the death certificate is filed with the appropriate financial institution.  The insurance benefit is tax-free, and the IRA money would roll-over into his IRA account, as he is a spouse (IRAs and 401(k)s get complicated - see a tax advisor!). 

The house is in Joint Tenancy with Right of Survivorship (JTWROS), as are our cars and the RV.  Again, file a death certificate with the county, and title to those properties pass to him, tax-free (and vice-versa, if he predeceases me) without going through probate.

But what happens if we both die at the same time - for example, in a car accident?  In that case, it is helpful to have a secondary beneficiary listed.  In this case, we used Mark's brother, although if he passes away (he is 13 years older than Mark) we can appoint someone else.   He has settled two estates so far, so he has a handle on how to deal with these things.  And quite frankly, I don't see the point in leaving money to my drug-addled relatives, other than a nominal amount to prevent them from contesting the will.

As for personal possessions, I left those all to the executor of the will.  Why?  Well, after seeing how this plays out several times now, the executor or whoever first arrives at the scene, will end up taking stuff anyway.   So just give it to them so they don't feel like they are stealing.  Expecting your executor to sell off your used underwear and unopened canned goods and then divvy up the proceeds to each family member is just stupid.   It is a lot of work to sell off all your crapola, and the executor has no incentive to optimize the outcome, if it is to be divided by 11.

When Mark's Stepmother passed away, the contents of the house sold for a few thousand dollars at an Estate Sale.  People bought the weirdest things - unopened boxes of cereal, canned goods, and whatnot.  Unsold were the large pieces of furniture, oddly enough.   Net proceeds?  About $3000 divided by nine heirs.   You might as well put it all in a dumpster.

In my mind, just give it all to the executor - they then have a motive to maximize the yield from all that junk and have some tangible benefit from being executor of the estate.  But that's just my opinion.  Others want to reach out from the grave with complicated instructions as to what is to become of their Hummel collection.

Of course, at that point, you are dead, so who cares?  Well, it is just common courtesy not to leave a mess for others to clean up.  Every year, people die intestate, leaving it to some unfortunate family member to clean up a mess of bills, sell off assets, and divide up pitiful proceeds among ungrateful heirs.

Think of the poor executor!