Financial Accounting, Part 1 (before I go – Chapter 4)

Animals have these advantages over man: they never hear the clock strike, they die without any idea of death, they have no theologians to instruct them, their last moments are not disturbed by unwelcome and unpleasant ceremonies, their funerals cost them nothing, and no one starts lawsuits over their wills. Voltaire (1694-1778)

A few years ago I was reviewing a new client’s estate planning documents when he showed me his trust agreement. It was comprehensive, detailed, and professional. There was only one problem with it: it was totally useless. A lot of the client’s assets were held in a “joint tenants with rights of survivorship” (JTWROS) account and the rest of his assets were held in retirement accounts. No matter what his trust document said, at his death the jointly owned assets would go to his spouse and the assets in his retirement account would go to the named beneficiary, also his spouse. The client was shocked to learn that the trust agreement that cost him thousands of dollars in legal fees would not affect the distribution of his assets one iota. Who owns what—otherwise known as the titling of assets—overrides other considerations and often determines what happens at death.

Titling may be even more critical if a spouse becomes incapacitated. Mark (not his real name) kept all the family assets in his name after marriage. This was not a major problem until he had an accident that left him totally incapacitated. His wife had to apply to the court to manage her husband’s assets and had to account to the court for the way she managed his assets. This created severe problems for her as she had to record and justify every dollar she spent as well as posting a bond.

Because estate law is complex and the cost of making an erroneous decision regarding the division of assets can be great, it is highly recommended that an attorney specializing in estate planning be retained prior to death. Having a professional review all your estate documents and plans can prevent unforeseen issues such as those that Mark’s wife had to deal with.

Your Will and Division of the Assets

Once the first few days of grieving are over, it is time for your survivors to address the issue of who receives your estate. If you are married and your spouse survives you, in most cases (but not all) the primary beneficiary is the surviving spouse.   Wills (and trusts—we’ll get to those later) are very important. They are legal documents that direct your executor on how you wish for your assets to be divided. There are several points to keep in mind about the transfer of property after death:

1. The way that property is owned (“titled”) and/or named beneficiaries take precedence over the directives of a will. This simply means that if you have an account jointly owned by you and your spouse with right of survivorship, your spouse will receive these assets irrespective of the terms of a will.
2. If you do not have a will (to die “intestate” in legal terms) the laws of the state in which you reside determine how your estate will be distributed. This may not be in keeping with your wishes, so have a proper will or trust prepared prior to your death, even if you plan to be immortal.
3. Even if you have a will, it cannot override the laws of the state in terms of beneficiary designations.

This is part one of the chapter on FINANCIAL ACCOUNTING from BEFORE I GO, by Arie Korving of Korving & Company.

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