When You Should Update your Will

The phrase is from movies produced more than 50 years ago. The doctor gives the bad news to his patient, “There is nothing we can do for you. It’s time for you to put your affairs in order.” I was reminded of it when I started working recently on two different probate files. In both instances the male decedent knew he had a terminal diagnosis but failed to put his “affairs in order.” These case histories will be semi-fictional because some legal issues are not yet resolve. Also to preserve the anonymity of the parties, I will refer to the first decedent as Aaron and the second as Benjamin. Aaron had no children and had not been married before. He had been contending with a serious medical condition in recent years and only late last year learned that it was terminal. So he decided to marry the girlfriend with whom he had lived for the last few years. They married but despite that being a major life event, he did not revise the will that he had signed about five years earlier and in another state. Not having an up-to-date will was only the most obvious of his mistakes. He owned a nice home with a mortgage. Through his employer he had some life insurance coverage. That life insurance would make those mortgage payments a lot easier. Therefore, changing the beneficiary to put his new wife down as a beneficiary was a no-brainer. He didn’t. After his death we discovered that he never processed the paperwork to change the beneficiary from his mother. Assets such as life insurance and retirement accounts with beneficiary designations are not usually controlled by a will. For that reason I call them non-probate assets. Aaron was two for two in messing up his non-probate assets because he had an old girlfriend listed as the beneficiary on his retirement plan. His employer was a state government agency. Therefore the requirement under federal law that the spouse must consent to a non-spouse beneficiary designation could not apply to this retirement plan. There still might be a happy ending for Aaron’s widow. If she is lucky, the old girlfriend will be generous and sign a disclaimer to renounce her rights as the primary beneficiary of the retirement account. Then, assuming the retirement account did not have a secondary beneficiary, his estate can receive that account and distribute it (after payment of income taxes) to his widow. Since Aaron had no children his only legal heir was his widow. Under Georgia law their marriage operated so as to “rewrite” his old will because her rights as the sole heir under the law of inheritance prevailed for everything except specific bequests (e.g. $5,000 to his older sister). Benjamin’s situation was even more of a mess. He married late in life and had a fine young son who was nine-years old at the time of Benjamin’s death. He had a $100,000 life insurance policy. Unfortunately he never updated that policy and it had his mother as primary beneficiary. She did not have any fondness towards her daughter-in-law and took the death benefit. The principal assets of Benjamin’s estate were his residence with $200,000 of equity and a rental home that did not have a mortgage but is worth $150,000. Benjamin never got around to consulting an attorney and preparing a will. Like many people he thought that making a will somehow made it more likely that he would die soon. Maybe he also thought that his wife would receive everything. Unfortunately, the law makes it complicated. His son is entitled to one-half of all assets titled in Benjamin’s name and his widow (and the mother of his son) gets the other half. The law of inheritance dictates that result when there is no will. If the probate court decides to make it easier for the family, it will allow the widow to create an irrevocable trust for the benefit of their son which will receive about $175,000 from the net proceeds of the sale of the real estate. She will be the trustee of the trust and will be empowered by the court-approved terms of the trust to pay for her son’s private school tuition. The balance remaining when he attains 18 years of age must be distributed to him. We can only hope that by then he will have learned some good sense about money, or at least listen to his mother and not spend it all in one place.  Both Aaron and Benjamin left as their first legacy after death an absolute mess for their widows. Systematic estate planning would have avoided that. A well-drafted will and possibly a trust would have been a great start. Then updating beneficiary designations on non-probate accounts would have been a finishing touch. All that can be emotionally hard for someone with a terminal diagnosis. However to quote John Wayne from one of his movie roles, “Sometimes a man’s gotta do what a man’s gotta do."

Only one-third of the people in this country who need a last will and testament have one. This article is written for those people. Once you have a will, the next task is to store it properly. The start of that process is to make sure that it’s the original that is being stored. In recent years I have had several probate estates where the executor could find a photocopy but could not find the original. I use water-marked paper and blue ink for signatures on the wills I prepare to make it easier to distinguish an original from a photocopy. Not all attorneys are so cautious, therefore every will should be examined carefully before it is stored to ensure that it is the original. When an original has been lost and the testator has died, the executor who is probating a photocopy must overcome the statutory presumption that the original was destroyed as a method of revocation. When all of the legal heirs are signing a written consent to the probate petition and thus there is no opposition to it, that task is doable but it can be time-consuming. Additionally, the Georgia Probate Code requires that the petitioner obtain written testimony from the two witnesses to the will or explain why those witnesses are not available (e.g. they are dead or cannot be found). All of that work is going to delay the granting of the petition and will most likely add to the legal expenses. The first thought of many people who are looking to store a will is to put it in a bank safe deposit box. That is likely to work if sufficient precautions are taken. The first problem is that a bank can deny access to a safe deposit box upon the death of an owner if no living person is listed in its records as an authorized owner or user. Next, there is the question of whether the location of the safe deposit box and the key to it are known to the family members. There is an alternative that is possibly “the best of both of worlds.” If the original of the will is stored in a good place at home (as discussed below), anyone who owns a safe deposit box can put a copy of the will in the box with a note attached that provides the location of the original at home. One lesser-known option is to go to the probate clerk of the county in which one is residing and deposit the will for safekeeping at the courthouse. A fee is charged for that service, usually around $15.00, and it should be done in person just to avoid the risk of the will being lost in the mail. The probate clerk normally provides a receipt that should be attached to the photocopy of the will that is safely stored in one’s records at home. A safe or file cabinet at home is a common solution for storage of the will. In the case of a safe, the first question should be who in the family knows the combination or has access to the key to the safe. In the case of a file cabinet, a properly labeled folder for the will is a good idea. Finally, a solution that is less frequently used is the will depository maintained by many, if not most, trust companies for wills (and trusts) in which they are named to serve as executor or backup executor, or as trustee. This is done at no expense to the testator and could be a wise precaution if there are controversial provisions in the will that might motivate a family member to destroy it after the death of the testator.  When someone takes adequate precautions it is more likely that the first “inheritance” to the surviving family members will be an orderly and less expensive probate process.

The ability to control the disposition of bodily remains after a person’s death (including cremation and burial) is something that should not be a bone of contention between family members. Once upon a time, Georgia law provided that the “next of kin” had the power to decide what would be done. That might become controversial only if family members had a difference of opinion. In this day and age of blended families, after divorces and remarriages, a family dispute is a real possibility. The case in Oklahoma of Estate of Foresee , 2020 OK 88 (October 13, 2020) illustrates what can happen. Fortunately, as you will see, that does not have to happen to people living in Georgia. Tom Foresee was married for 39 years and at the end of his life suffered from ALS (Lou Gehrig's Disease). It is possible that the effects of that disease was one of the reasons that his wife filed for divorce in 2019. As one might expect after a divorce was commenced, when Tom Foresee prepared his last will and testament he named two of his children as executors of his will and not his wife. He died on January 11, 2020, presumably before the divorce was finalized. The two children and his wife got into a dispute over how to dispose of his body. The children, as executors of his will, filed a petition in probate court, which was granted. A few days later the wife filed an objection, which was denied. The wife appealed to the Supreme Court of Oklahoma citing a conflict between the provisions of the will directing the executors to pay for the expenses of burial and a state statute that provided that a person could assign the right to direct the manner in which his body shall be disposed of after death (in this case to her). The state supreme court sided with the executors and gave them priority because the court did not want to separate the authority to make the decision from the responsibility for paying the cost of that decision. That sort of fight should not happen in Georgia because a statute, O.C.G.A. § 31-21-7, establishes the priority for disposing of remains. The health care agent under an Advance Directive for Healthcare has first priority. Someone named in a “pre-need affidavit” (as set out in the statute) has the second priority. The surviving spouse has third priority. The executor of the decedent’s estate is in ninth place. I believe that a well-drafted Advance Directive for Healthcare should explicitly refer to the authority for the Agent to direct the disposition of bodily remains after the death of the person making that directive. That way any family member who wanted to object would be confronted with the explicit provision in the Advance Directive authorizing the Agent to control the arrangements. There would be no need for people to be pulling out a state statute. The provision could state, “My Agent may direct the disposition of my remains, and the authority granted by this Advance Directive for Health Care shall specifically extend beyond my death to enable my Agent to perform this duty.” The Advance Directive provides a space for special instructions and I often have clients specify whether or not organ donations are to be made and whether a burial or a cremation shall take place. Most Advance Directives for Health Care are prepared when a person is making his or her Last Will and Testament. That Advance Directive and a General Power of Attorney are usually “piggy-backed” on to the project of preparing the will. Surveys show that only one-third of people who need wills go to the effort of having them prepared by a competent attorney. (Don’t get me started on the mess created by most “home-made” wills.)  The fight seen in the Estate of Foresee is possible in Georgia, but unlikely when people take advantage of the Advance Directive, especially when they include in the directive some specific instructions on the disposition of bodily remains.

For some people making a charitable bequest in a will is a big mistake and it’s not because the charity is not deserving. It’s because the will may not be the best source of that charitable gift if there are retirement accounts that are going to the children of the testator (the person making the will). It is a matter of tax efficiency. Assume that the testator has plenty of assets owned in his or her name in addition to the (tax-deferred) retirement accounts. In this scenario the testator wants to give $100,000 to one or more charities and then the remaining $900,000 to children. (In this scenario there is no surviving spouse.) Of that $1 million in assets, $100,000 is in traditional retirement (not Roth) accounts. If a charity is the beneficiary of the IRA account(s), then no income tax is paid after the death of the testator (who as account holder is naming the charity as the beneficiary of the accounts). There is an additional advantage to using the IRA account because it is easier to change the beneficiary of the account versus changing the recipient of the charitable bequest in the will. If the charity is a named beneficiary of $100,000 in the will, there is still no income tax paid by the charity and the estate may receive an income tax deduction for the charitable bequest, which might not be that beneficial if it does not have much taxable income. However, if instead the $100,000 of IRA money is left to the children as part of the $900,000 going to them, then about 25-30% of income taxes (federal and state) will most likely be due on that $100,000. It might be even more if some or all of the children are in higher income tax brackets, or the tax rates are dramatically increased in future years to pay for the profligate spending currently in fashion in Washington. Once upon a time the inherited IRA could be “stretched” over the life of a child who is a beneficiary with minimum required distributions each year based on the life expectancy of that child, re-calculated each year. In 2019 that rule was changed by the “Secure Act” and now, with exceptions for minors and disabled children, the inherited IRA must be completely distributed with the taxes paid by the end of the tenth year after the year of the death of the original account holder (in this scenario the parent).  There are details that should be worked out with one’s tax advisor before implementing a charitable giving plan with this approach. It might be feasible to name the charity of some of the IRA money with the balance going to the children. Until January 1, 2020 (the effective date of the Secure Act) it was a big mistake to mix charities with individuals in an IRA beneficiary designation because the after-death distribution rules depended on the life expectancy of the beneficiaries and a charity has no life expectancy. Now that there is a 10-year rule applicable to such distributions, it is possible that this is no longer a problem in “mixing” the beneficiaries. This post does not constitute tax advice and under IRS rules cannot be relied upon in the completion of income tax returns. However, it is useful in raising the question of what is the best asset for charitable giving. One of my favorite aphorisms is that you can’t get the right answer unless you ask the right question.

The answers to that question in this post assume that the estate is in Georgia. In any other state similar or dramatically different procedures will be used depended on how much that state’s probate code differs from Georgia’s. A well-drafted will in Georgia, which excludes practically all do-it-yourself projects, contains a waiver of three requirements: Obtaining a fiduciary bond. Filing an inventory at the probate court of the estate’s assets. Filing an annual report at the probate court of the estate’s accounts and activities. When those requirements are not waived in the will, or there is no will, it is sometimes possible to obtain a court order to waive them. However, that usually requires that all the heirs and/or beneficiaries of the estate do not object to a motion for the court to grant that waiver. When the filing of an annual report has been waived, the beneficiaries of the estate are still entitled to receive a report each year as to the money coming into and going out of the estate. The big difference is that report can be less formal than a court-filed annual report and therefore less expensive to prepare. An often over-looked task for the executor, or administrator of the estate when there is no will, is to provide a receipt for the beneficiary to sign and return acknowledging delivery of the bequest to him or her. If the distribution is being made before all taxes and debts have been paid, the cautious personal representative (a term covering both executors and administrators) will include an acknowledgment by the recipient that it is logically possible that the distribution might be “clawed back” into the estate because of an unexpected gap between the assets still in the estate and previously unknown liabilities. The really cautious personal representative (“PR”) will calculate the future cash flow requirements for the estate and then hold back a reserve of money that is three times the anticipated cash requirements. If not enough information is available to the PR to make that calculation, then no distribution should be made until there is. An example would be pending litigation against the estate with difficult to calculate damages allegedly to be paid from the estate’s assets. Taxes are probably the biggest reason that any PR should not be in a hurry to make distributions. For example, does the PR know whether the decedent filed returns and paid all income taxes for the years prior to the death? What possible tax liability might exist for the estate’s income if the estate is open for multiple years? With a very few estates there can be a federal “death tax” liability. Currently the exemption from that tax is $11.6 million. It is inflation adjusted each year and part of that exemption can be used to avoid gift taxes on lifetime gifts. Therefore the figure is an approximation. These days I rarely see an estate that must file a tax return for the death tax because there are so few estates that large. In my opinion, estates under $6 million are unlikely to be taxed even if the exemption decreases during the foreseeable future. Finally, there is the fairly common situation where the PR is also the only beneficiary of the estate. Most surviving spouses are in that situation when there is a will that provides “all to my spouse if she survives me and if not then equally to my children who survive me” and the spouse is serving as the PR. Then the PR needs to look at whether formally closing the estate (with a court filing) is a good idea because there are known or potential creditor claims which are not easily resolvable. If those claims are disputed but no suit has been filed, then the PR may need to force the issue by filing a Petition for Discharge that, if granted, will close the estate. When the unpaid creditor is listed on the Petition for Discharge and served with a copy, it must file an objection to the petition. Failure to do so will result in the estate being formally closed and the creditor barred from subsequently filing a suit for the claim. It’s sort of a “put up or shut up” moment.  The most important point for any PR to remember is that consulting with an attorney, preferably one retained at the beginning of the estate administration, is a good idea. That way the PR can avoid future problems created by a failure to administer the estate in accordance with the terms of the will and/or the probate code.

How you handle the beneficiary designations on your life insurance and retirement accounts can be just as important as naming the beneficiaries of your probate estate in your last will and testament. I call them non-probate assets. In the hundreds of estate planning worksheets I have received from clients in the past few years I have identified a common pattern. About half the family wealth passing to the next generation in the event of a death with no surviving spouse are the non-probate assets. For discussion purposes let’s address the hypothetical couple with one or more children under 25 years of age. Often that couple will have no less than $500,000 of life insurance coverage through a combination of the group term policies from their employers and the individual policies they own. If they have been prudent, or fortunate enough to have a generous 401(k) plan at work, there might be another $200,000 in retirement accounts. With equity in their home, some stock investments and cash, this couple could be “worth” about a million dollars in the event of both of them dying, either simultaneously or sequentially. Let’s also assume that they have been prudent enough to get wills drawn up when the children were younger. Unfortunately, they have been too busy with everyday life to revisit the subject of their wills and estate plan. The wills are now more than ten years old. In the intervening years those non-probate assets built up without much thought as to how they relate to the provisions in their wills. Ideally they have a contingent trust in those wills that will be established in the event that there is no surviving spouse and there are children living. But how will all those non-probate assets get into that contingent trust? The answer is the secondary beneficiary designation. Usually that designation will specify the trust established by the insured’s last will and testament. That is called a testamentary trust. Sometimes it will be a trust established by a separate document (often called a “living trust”).The person named as trustee obtains the payment of the life insurance and retirement account, but only if the trust is designated as the secondary beneficiary. In Georgia a testamentary trust is fairly common because Georgia’s probate system is very user friendly. However, sometimes it can be appropriate to write a revocable trust (a “living trust”) instead of a testamentary trust. Then the secondary beneficiary for John A. Client could be the Trustee of the John A. Client Family Trust, under agreement dated 12/1/2020. Someone who does not have a trust for young children might be tempted to put them down as the secondary beneficiaries of the life insurance. That is not a good idea. If the death benefit from life insurance is payable to someone who is under 18 years of age, the company will insist on paying it to a court-appointed conservator of the property. The legal costs and the premiums for the surety bond required for any court appointed conservator can be considerable. Once the child attains 18 years of age, the entire death benefit must be turned over to the child. In the meantime, without permission from the probate court, the conservator can only invest the trust’s assets in bank accounts, certificates of deposit and state/federal government bonds. It’s far better if the death benefit is held in a trust. The terms of the trust can require the trustee to use the money for the child’s care, education and support. Investments by a trustee are governed by the reasonable prudent investor rules. The trust assets can be invested in stocks, bonds and financial instruments. Individuals serving as trustee can engage an investment advisor to design and manage an investment portfolio. The trust provisions can delay the ultimate distribution of all the assets to the child until a time when the parent believes the child is going to be responsible. In the worst case scenario the trust will continue to operate during the entire lifetime of the child. Finally, there can be complicated income tax issues when the trust is named as the secondary beneficiary of a retirement account (with the spouse as primary). Special trust provisions should instruct the trustee to comply with the tax code’s requirements for distributions from the trust to the beneficiary after the death of an account holder. It’s a complicated subject deserving a separate blog post. Suffice it to say that boilerplate trust provisions are unlikely to even mention the tax angles.  The job is not done until the legal documents have suitable beneficiary designations so that both probate and non-probate assets will end up controlled by the plan embodied in those documents.

A recent article in The Wall Street Journal about including your digital assets in your estate planning got me thinking about how electronic files and communications are becoming integral to our everyday lives. Just the other day I was preparing an updated will for a client who alerted me to his Delta Sky Miles account and his points in the Marriott Hotels Rewards program. Due to his work before retirement he had a lot of “points” in both programs. In order to control them in the event of his death I included specific bequests to a son and a daughter. Each was to receive one of the accounts. Without the specific bequests it likely that both Delta Airlines and Marriott Hotels would have refused to a post-mortem transfer. Digital assets in our daily lives our often linked to email accounts. In 2017 Georgia adopted the Uniform General Power of Attorney Act. One of the innovations in the statute is to allow the principal to empower the attorney-in-fact to “exercise authority over electronic communications sent over received by the principal.” Any general power of attorney done before July 1, 2017 in Georgia probably does not address that issue. As a practical matter the agent is not going to be able to access email or many online accounts without a password. Therefore, it is imperative that people adopt and use a password manager program. The two most highly rated programs are LastPass and Dashlane. Both programs are cross-platform solutions with versions to run on your PC, your cell phone and your tablet computer. The estate planning angle is that the manager requires one “master password” and that password can be written down and appropriately hidden somewhere at home for the agent in the event of incapacity, or the executor in the case of death, to locate and use. All those photographs stored electronically in the “cloud” are going to be easier to retrieve if the necessary information as to their existence and the web sites involved is put into that password manager. Did you know that the eBooks that you have purchased from Amazon for reading on a Kindle, iPad or phone don’t really belong to you the same way as a hardback copy does? In the event of the death of the account holder, Amazon’s current Digital Rights Management agreement does not authorize the transfer of the license for the eBooks as part of your estate. So it might be wise to have at least one device that has copies of the library you want to keep for the indefinite future, even beyond your death. The same might apply to any music library that is cloud-based. Over the years a person could put a lot of money into a collection of books or music that could vanish into the ether in the event of death. I am not a big user of Facebook but I do know some people who seem to devote a great part of their lives to an online existence there with a network of friends and family. Anyone who does should look at what is the deal on archiving any of the information on Facebook and how long a Facebook account can be kept “alive” after the death of the owner. One last thing about your digital existence could enable you to create history. Some people have art collections or family heirlooms on the walls, or on the mantlepiece in the living room. The story behind such items could be preserved by the simple technique of a walk-through with a running commentary – all recorded because of the video capability of your cell phone. An old rocking chair may be more of a keepsake if the family knows that great-grandma used it to rock her firstborn to sleep. The picture of the good-looking young man from the 1930's should have some “caption” to indicate that it was a great-great-uncle photographed before he went to a war from which he never returned.  One’s electronic life should be integrated into the real world. Living in the present is a pretty shallow existence when there is no perspective from the past and no plans for the future.

A good estate plan only starts with well-drafted documents. Whether a person uses a Last Will and Testament or a combination of a Will and a "living trust," paying attention to the details of how property is titled and what beneficiary designations are made for "non-probate" assets is essential. It's coordinating a person's economic reality to the documents. I frequently see situations where more than half a family's wealth consists of an IRA, 401(k) account and life insurance. In those cases part of my responsibility as an estate planner is to alert the client to the need for intelligent choices of the beneficiaries for those assets and to help the client to implement those choices. Consider the hypothetical case of Mr. & Mrs. Hitech. They both work for telecommunications companies. They have three children: two from their marriage and one from Mrs. Hitech's previous marriage, with the oldest (hers) attending college at the University of Georgia. Each has life insurance policies totaling $600,000 and retirement accounts of about $500,000. With their other assets each would leave an estate worth over $2 million. However over half of that wealth is in retirement accounts or death benefits from life insurance. After the tax reform bills passed in 2010 and 2017, the Federal Estate Tax has become a non-issue for over 99% of the population. The Hitech family should be safe from the IRS because (as of 2020) over $11 million can be passed to the children without any estate tax. That "exempt amount" may revert back in 2026 to a lower amount established in 2011. However, adjusted for inflation that is likely to be no less than $6 million. Thus, tax planning has become less important. For most people the selection of the primary and secondary beneficiaries on the retirement accounts and life insurance is equal in importance to what is done in the wills and/or trusts. Those designations could be pivotal in the transmittal of wealth to the surviving spouse and children in a fashion satisfactory to the client. A person can title his or her property in several ways, all of which have implications for how ownership of it will pass in the event of death. It is common for a husband and wife to have their home and other real property titled jointly with right of survivorship. This approach emphasizes flexibility over predictability. It postpones the issue of the ultimate passage of title to a non-spouse beneficiary (such as the children of that marriage, or of multiple marriages) to the "second death," the death of the surviving spouse, whoever that might be. If the spouse is the sole beneficiary in our fictional Hitech family, there is a real possibility that the entire $4.0 million of family wealth will be controlled by the wishes of whoever happens to be surviving spouse. If there is a trust in the will of the first spouse to die it may get few, if any, assets because practically all of the decedent's assets never "passed under" the will (and thereafter to the trust). Why would that happen? The answer would be those beneficiary designations and the residential property owned “joint with right of survivorship.” Even in a case where there is no blended family, there is no guarantee that the surviving spouse will not re-marry and leave the entire family wealth from the first marriage to that second spouse. There are a couple of challenges facing Mr. & Mrs. Hitech: (1) Do they want to treat the children from the different marriages equally in the division of assets? (2) How do they make sure that all of those non- probate assets go into a trust for the children in the event that there is no surviving spouse? For a married couple who have children from two different marriages, there are two common approaches: one is to treat all of the children as one class of beneficiaries who will receive equal shares from the combined wealth of the husband and wife after both of them have died; a second approach is to identify particular property as going to a child or children (often in a trust) with the balance going outright to the spouse. The first approach requires that the surviving spouse hold to the plan after the "first death," even if there is a second marriage. The alternative would be to use a trust to hold the property of the first spouse to die for the benefit of the surviving spouse with a final distribution to the children after the "second death." But there is a pitfall even with a conservative approach. Assume a trust that will ultimately benefit the children is built into the plan. The beneficiary designations for the life insurance and retirement accounts must be updated to designate the trust, or if the client wishes, the spouse individually, or a mix of the two. Even a "conventional" family can run into trouble. If it is a younger family, then minor children could be mistakenly named as direct "secondary" beneficiaries of life insurance or retirement accounts. Instead (most of the time) the secondary beneficiary for the life insurance and the retirement accounts should be a trust for the minor children. An older couple often faces the dilemma that the surviving spouse could be disabled. Usually the spouse should not be named as the direct beneficiary of a size-able retirement account. Instead a specially designed trust should be receiving the account with that surviving spouse as the sole beneficiary of the trust during that person's remaining life.  It should be obvious by now that drafting a good set of documents is only part of the solution. A person must formulate a plan to coordinate the economic reality with the legal documents. Otherwise those documents could be like someone who is "all dressed up with no place to go."

A retirement account can be the key to long-term financial security. It also can be a person's largest financial asset, if not in the present at least in the future. After recovering from the dramatic downturn in the stock market in 2008, some investors are regaining their optimism as stock prices climb. Over the long term IRA's (and 401(k)’s)are probably one of the best ways a person can provide for a more secure future and possibly avoid inflation eating into the real value of his or her wealth. Estate planning as to a retirement account starts from two basic facts: (1) at death the account passes to a designated beneficiary and (2) income tax has been deferred for a retirement account (except for Roth IRA's). It must be paid when money is distributed from the account, whether that happens before or during retirement, or after the death of the account holder. A note as to terminology: In this discussion I am going to use IRA's to refer collectively to all tax deferred retirement accounts because (1) the law is generally the same for IRA's and these other accounts; and (2) an employee upon retirement or leaving a job can usually convert a 401(k) and other pension accounts to an individual IRA. Most experts suggest rolling over a 401(k) or other employer-provided account to an IRA upon retirement or changing employers. The Federal Estate Tax is less of a threat to large IRA's as it was in previous years. As of January 1, 2020 each person can pass about $11.5 million of assets to the next generation free of the Federal Estate Tax. That exempt amount will revert after December 31, 2025, to the figure under the previous tax law, which should be no less than $6 million. Of course, Congress can write another “tax reform act” before January 1, 2026 and preserve the higher figure. The Federal Estate Tax (sometimes referred to as the "death tax") is imposed on a person's wealth, their retirement accounts and any life insurance death benefits from policies owned or controlled by the decedent. Any assets going to a surviving spouse are usually protected by an unlimited marital deduction, which simply means that imposition of the death tax is postponed until the death of that surviving spouse, the "second death." A surviving spouse has the option of rolling over an IRA into his or her own IRA account, thus postponing the income taxes until money is withdrawn from the new account, which ideally is when that person has retired. No other beneficiary can do a rollover. Thus it is usually a no-brainer for a person to name their spouse as primary beneficiary of their IRA. But what about the "backup" beneficiary? If the account holder has minor children, there can be problems. Minors cannot own such property in their own name. This legal disability is why people create trusts to hold assets for their children until they are older and (hopefully) wiser. If you go to the trouble of setting up a trust for the children (even if it is only through your will -- a "testamentary trust"), should you name that trust as beneficiary of the IRA? The answer is probably yes. However, any trust that is named as the beneficiary of an IRA must be drafted very carefully because of the income taxes on the account. Until January 1, 2020, the trustee of such a trust for the children could “stretch out” the distribution of the retirement assets based on the life expectancy of the beneficiary. Because of a law enacted in December 2019, with few exceptions that is no longer possible for a non-spouse beneficiary. In most cases the account must be distributed in full and the income taxes paid within 10 years of the death of the account holder. (Roth IRA’s must be distributed but no income taxes will be imposed on the distributions.) Some people are not in the clear even after their children are grown up because they have "blended families," with children from previous marriage(s). Naming a surviving spouse as the beneficiary creates a risk that the children of the original account owner will never see any of the IRA money because the surviving spouse can rollover the account and name new beneficiaries. If the IRA is large enough it might be worthwhile to name a trust specifically drafted to pay all IRA distributions to the surviving spouse and upon his or her death then to the children. One pitfall to avoid is failing to name a beneficiary, in which case the estate of the account holder will most likely become the IRA beneficiary. That will be a real mess if that deceased account holder died without a will. Now that I have covered the problems, what is the solution? It would take a fairly thick book to discuss plans for the most common scenarios. I know because I have such a book on my shelf. A list of possible beneficiaries is the following: surviving spouse, custodian for minor children, children outright, a specially drafted trust and/or a charity. In may be necessary to name such beneficiaries in order of priority instead of all together. Thus the beneficiary designation language may be as complicated as the language in the will. As the sergeant used to say on the TV series Hill Street Blues, "Be careful out there."