12 Dec Can someone other than heirs manage money when we’re gone?

Q. Both myself and my wife are 78 years old and have two adult unmarried children. We have decent sized assets. We executed a will and testamentary trust a few years ago naming them as beneficiaries. All our accounts with the financial institutions also name them as beneficiaries. Both children, though well educated, are not the type who will be taking the trouble to go through all the paperwork to get our assets transferred if something happens to both of us. What would be the best way to make the process easy for them? Shall we name them as joint co-owners in all our accounts instead of just beneficiaries? What are the pros and cons?
— Perplexed Parents

A. We’re glad you’re considering this now.

It is an important responsibility for the people you leave behind.

In determining how your total estate will be distributed at your death, it is helpful to distinguish between probate assets and non-probate assets, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

Probate assets are assets which you own alone, with no named beneficiary, or your interest in assets held as tenants-in-common with another person, she said. Probate assets will pass in accordance with the terms of your will which may include a testamentary trust.

Non-probate assets include assets which you own jointly with another person, such as joint real estate, joint bank accounts, etc., as well as assets which designate a beneficiary, such as payable on death (POD) accounts, life insurance and retirement assets, she said. They also include assets held in a trust.

“These assets will pass to the joint survivor or named beneficiary by operation of law or according to the terms of the trust and are not controlled by your will unless the named beneficiary is your estate,” Romania said

The fact that you have named your children as beneficiaries on all of your accounts with the financial institutions means that the accounts are non-probate assets and as such the assets will pass directly to your children upon the survivor’s death and will not pass in accordance with your wills.

“In simple terms, beneficiary designations override the will provisions as to such assets. If you want your will to control how the assets pass, such as to trusts you have set up in your will, then you must remove the beneficiary designations,” she said.

Notwithstanding the above, naming beneficiaries is recommended for retirement accounts, such as IRAs and 401(k) accounts, she said. Although the assets “pass” to the named beneficiaries, the beneficiaries must still set up their own accounts in which to hold the funds otherwise they will remain in the name of the deceased, she said.

If you were to name your children as joint co-owners on your accounts instead of beneficiaries, you would be making a gift to them of as much as one-half of the account which would require the filing of a federal gift tax return although likely no gift tax would be due unless you exceeded your exemption, which is $13.990 million as of Jan. 1, 2025, Romania said.

“For beneficiaries who are not able or willing to handle their financial affairs, it is recommended that you have trusts established in your wills — called testamentary trusts — or established independent of your wills and funded upon death into which the executors may pour the funds and named trustees — a trust company or financially mature individuals — may administer the funds for the beneficiaries,” she said. “Income may be paid to the beneficiaries regularly and principal distributions made as required.”

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This story was originally published in December 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.