3 Tips for Estate Planning with Investment Accounts

When you sat down to begin or review your investment accounts, chances are your mind was focused on the future and how far your money can go. But, did you ever stop to think about how your investment accounts fit in to your estate plan?

Know Your Accounts

The most important thing you can do when you begin to bring together your estate planning and investment accounts is take inventory of all your assets. Be sure to record:

  • What kind of accounts you have
  • Where the accounts are held
  • The present monetary value

Once you have a grasp on exactly what kind of accounts you have and how your assets are distributed, you can begin to make decisions about how you’d like to assign the assets in the event of your passing.

Know Your Beneficiaries

The next step in estate planning with investments is to understand how your accounts are currently set-up to pass to your heirs and how you’d like them to pass. Namely, who are the beneficiaries of each account currently? And, does that match up with who you’d like to leave those assets to, or is there a more beneficial way to leave them (like to a trust which will then distribute the assets). For each account note:

  • Who the assigned beneficiaries are
  • Who you’d like to leave each account to in your estate plan

This information is particularly valuable to anyone who has remarried or has step-children, grandkids, or others similar heirs they’d like to include in their estate plan.

Chances are, if you have any accounts that were established more than 10 years ago, your situation may have changed and you should double check to make sure the account is still assigned to the appropriate beneficiary. Especially since making beneficiary assignments in your will is not enough for investment accounts and insurance policies.

Remember : The beneficiary who inherits is the one listed in the account documents (the contract), not the will.

Structure Your Investments to Avoid Probate

One of the hallmarks of investment and estate planning is to set up your accounts so that probate can be avoided as often as possible. Luckily, there’s more than one way to do this and chances are, for at least some of your needs, one of them will work.

Different forms of ownership that can help avoid probate:

  • Transfer on Death (TOD or POD) Beneficiaries
  • Joint Ownership
  • Joint tenants with right of survivorship
  • Tenants by entirety
  • Tenants in common

Transfer on Death & Payable on Death Beneficiaries

A TOD or POD does exactly as stated; it applies to financial accounts, investments, banking accounts, and sometimes even real property (depending on your state of residence), and delivers the assigned asset to the beneficiary upon your death.

It’s so simple and straight-forward that it can almost seem too good to be true. And, while it can be very beneficial in estate planning – when used correctly – it can also easily create a bigger issue if your over-all, big picture is not appropriately planned and monitored.

What that means is, when you set up an account to be TOD or POD, you need to monitor the account and changes to it at least every couple of years. The main reason being – you want to make sure your TOD beneficiary doesn’t change (and if you do want to change it, you need to change it in the contract) and you also want to make sure the account doesn’t grow or shrink more than you planned.

When you begin assigning TOD beneficiaries it may seem easy enough to leave somewhat equal inheritances to heirs by simply assigning each one of them as a TOD beneficiary on different accounts.

But, money doesn’t always grow at the same rate and what may have been equal sums once upon a time can easily become two very different amounts after years have passed, so keep an eye on each account if this is how you set up your estate.

Joint Ownership Options

here’s a few different forms of joint ownership, each with their own set of benefits.

Joint Tenants with Right of Survivorship

Allows you to own property (both physical property and financial or banking accounts) and pass your ownership rights to the other owner upon your death. This can be anyone you would want to share ownership with – spouse or otherwise.

Tenants by Entirety

This form of ownership offers the same simplistic transfer and benefits as above, but it’s specifically for married couples only.

Tenants in Common

Lastly, tenants in common ownership allows you to have joint ownership over property while you are alive, and then leave your share or interest in a property to your heirs, rather than leaving it to the other owner. * This is the one joint ownership option that does often go through probate because of how the interest is transferred. Do your research and make sure it’s right for you before choosing this option.

The absolute best thing you can do for yourself to make sure that your investments are included in your estate plan in the most beneficial and appropriate way, is to contact an estate attorney.

You’ll have a one-on-one opportunity to tell them your goals and desires for your estate plan so they can help you make important decisions like how to best assign accounts, whether or not a trust could benefit you, and the best way to avoid probate with the specific assets you have.