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Tax Planning Advice: Coordinating Beneficiary Designations—Martin Shenkman

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This is the 21st in a series of 23 tax tips that AdvisorOne is publishing on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).

Today’s tax tip comes from Martin Shenkman of Shenkman Law, with offices in New Jersey and New York. Shenkman is the author of 34 books, hundreds of magazine and journal articles, and received his undergraduate education from the Wharton School of the University of Pennsylvania, his MBA from the University of Michigan, and his JD from Fordham University.

The Tip: Coordinating beneficiary designations and titles to wills.

One common failure that Shenkman sees is failing to coordinate beneficiary designations and titles to wills. Clients often believe, says Shenkman (left), that all their estate tax problems are solved once they’ve gone through the process of making a will and designating bequests with the guidance of an attorney. But clients can undo all that hard work, he points out, by failing to coordinate beneficiary designations for their IRAs, life insurance policies, and brokerage accounts by relying on “the guidance of a bank teller.” In effect, they can negate most, if not all, of what they’ve gone to such pains to organize.

“This is very common,” says Shenkman. Here’s the usual scenario: A client in a second marriage sets up trusts for the new spouse and his children from a prior marriage under a will, with care paid to be sure that asset ownership goals are met. Some assets, for instance, might be left joint with the new spouse or with the children, depending on the case, so that they have some assets outright without trust delays.

Everything works perfectly until the client changes his bank or brokerage firm, and the teller or broker “has all the accounts retitled to joint, or has the client fill out beneficiary designation forms. The entire plan is destroyed, and either the kids or the new spouse end up getting all, and the will is useless. This has happened so many times,” says Shenkman, “that someone should name it ‘bank teller estate destruction.’”

See our Tax Planning Special Report calendar for a list of all topics covered in the special report.


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