Don’t Forget About Asset Alignment!

Congratulations! You have just signed your Living Trust or Last Will and Testament! If you are like most folks, this is a meaningful and satisfying moment. A thoughtfully designed and implemented estate plan is the critical step to assuring that your planning goals and objectives are reached and that the wealth that you have taken a lifetime building is thoughtfully delivered to your loved ones in a cost efficient manner. Having completed this important step, it is critical to FINISH THE JOB! In order to assure that your plan actually “works as intended,” you must now assure that all of your assets are properly “aligned” with the intended plan. If the asset alignment “step” in the process is not carefully attended to, the entire plan could be significantly and unintentionally altered.

To understand why asset alignment is critical, understand that many individuals have a significant portion of their “wealth” held in what are commonly referred to as “beneficiary designation assets” – assets such as IRAs, annuities, life insurance, or cash/securities accounts that have been registered as “transfer on death” accounts; real estate holdings that are titled either jointly with other parties “with rights of survivorship”; real estate interests that have been bifurcated into “life estate” and “remainder” interests; or bank deposit accounts that are jointly owned with other parties “with survivorship rights.”

The critical factor to understand is that the Will or Living Trust based estate plan documents will be “trumped” by the actual beneficiary designations and “survivorship right” documents/accounts that are in place as of date of death. As an example, assume a securities account designates Child A as a 100% “transfer on death” beneficiary, and the Will/Living Trust directs that all assets be divided equally between Child A and Child B. In this case, Child A receives 100% of the securities account. While this may have been the intended result, it is important to at least verify that this is in fact the desired outcome. Simply “trusting” Child A to voluntarily share the account with Child B is clearly not reliable planning, and could have significant transfer tax implications to Child A, even if Child A decides to “share”!

Always remember that effective planning has two phases – document implementation followed by asset alignment! Take the time to “complete” your estate plan implementation by thoroughly reviewing all of your “asset alignments” to assure that your assets will in fact pass as intended and planned!