This is part two in our three-part special sub-series on Protection Strategies. In part one of this sub-series on Protection Strategies in the era of COVID-19, we looked at steps you can take to make plans in the event of your incapacity or plans you can make to mitigate the financial complications of incapacity of a loved one. This particular Wealth Management Issue #8, Titling & Beneficiary Designations, seems as if it should be fairly straightforward, but it is not.  In a perfect world, the titling of your assets and wealth are congruent with your beneficiary designations, wills, and preferences. After all, when you open an account or take out a policy, you are completing those sections with valid information at that given time. But times change. Spouses change. The number of dependents change. We have the best intentions to change all of those accounts and paperwork as our life changes, but life often gets in the way. We think we will have time to complete those tasks until it’s too late. Let’s elaborate.

Titling & Beneficiary Designations

Number 8 out of 13 in our Wealth Management Issues Series

*Special Protection Strategies Edition part 2 of 3*

The initial question you might have is “I understand that this is an important Protection Strategy, but what does this have to do with COVID-19?”. Great question. The answer is simply that we do not know when life can change, or when circumstances can change, and we no longer have time to change what we intended to change.

You likely know about how a will works, but assets transfer in a couple of ways within our society. One way is through ensuring that an asset can transfer to a beneficiary that is in accordance with their wishes. If the assets themselves are titled with joint ownership or if there is a beneficiary, it is the easiest way for the asset to transfer posthumously. If the assets do not have beneficiaries designated, then the assets pass to the power of the executor/executrix and can be used to pay for the expenses of the estate unless there is other guidance within the will. The most direct way to transfer an asset is to either title it in a way that it is jointly owned or to use the beneficiary designation to ensure the asset transfers upon death.

But what does this have to do with COVID-19?

Simple. During the peak of the 2020 pandemic, many hospitals were at max capacity and nursing homes were on lockdown. This meant that if a family member or loved one was being treated in the hospital or residing in a nursing home, the facilities were locked down and family members and executors had no access to make legal changes based on a sick person’s final wishes and intentions. Many people entered hospitals and never saw their family members again due to the isolation efforts. Even if they were able to speak or if they were cogent and able to make their own sound decisions, they never had the opportunity to speak to their families or their advisors to make those changes.

Consider even the most basic risks associated with this wealth issue. For example, say you are a divorced person with a life insurance policy where the ex-spouse is still the beneficiary of the policy. In many instances, we forget to change beneficiary designations because we always feel we will have time to do that administrative stuff. Probate judges and executors can’t override and say, “well I’m sure s/he really meant for that asset to go elsewhere.” They have to follow specific written instructions. In that life insurance example, if you pass away and have never updated your beneficiary designation on that policy, you will be making an ex-spouse a beneficiary while your current spouse now does not have the resources they need to continue their lifestyle as your ex is now in receipt of your life insurance proceeds.

Wills are often thought to be deciding documents, but not if the assets are titled correctly or have current beneficiary designations marked. Another example where the will is moot is when titling property as Joint Tenants with Rights of Survivorship (JTWROS). If a property is co-owned with JTWROS, even if the will directs disposition to someone else, the co-owner receives the property.

There are some assets that act by virtue of contract law whereby the beneficiary designation supersedes the will and any expressed intent. Life Insurance was already provided as an example. Other assets included in this category are Qualified Retirement Plans (e.g. IRAs, 401ks/403b) and Annuities will pay to the listed beneficiary regardless of wills or other legal documents. In many cases, estate planning attorneys will encourage the beneficiary information to include a primary, e.g. spouse and a secondary or contingent beneficiary, e.g. family trust. Consult with your attorney!

Presumably, after having read these examples, you are thinking – does the titling of my assets align with beneficiary designations, wills, and preferences? It’s absolutely critical to take stock of EVERY asset; namely, how it’s owned, what those ramifications are, and who is named as the beneficiary. Let’s avoid having the courts involved in our lives via probate with proper planning.

This entry may have contained some jargon, so here is a brief legend to clarify any confusing terms or strategies regarding account titling.

• Individually Owned: Solely owned. The will determines who is the beneficiary. 
• Tenants in Common: Separate interests. Each individual owner’s will determines distribution.
• JTWROS: Co-share. Will is moot. If an investment account is owned with a spouse, the spouse will receive it at death.
• Tenants by Entirety: Spouses only. Both must sign. Again, make sure this is in alignment with overreaching goals.
• Community Property: spouses only. Confirm the will communicates intent. 

There are more layers to this essential Protection Strategy, but as it relates to COVID-19, the point is that we never have a better time than the present to get out affairs in order. The people entering the hospital for check-ups on their breathing often never saw their families and advisors after that moment. We do not know what future waves look like nor how quickly the medical community will be able to respond to the next pandemic. You can mitigate these risks by working with your advisor on a quick Titling and Beneficiary Review.

We will look at family communication tactics in the third part of our Protection Strategies COVID-19 special edition on Executor and Trustee selection.

When considering these issues, it’s important to ask yourself, how do any of these affect you, your family, and your goals? The following installments will cover each of these Wealth Management Issues in greater detail. Our hope is this series of chapters will provide not only an educational forum but also promote thought, leading to action…in a holistic manner, of course. Learn about our other 13 Wealth Management Issues here.

Watch our Whiskey & Wealth Wednesday video of this article:

If you would like to learn more about this subject please contact us and we’ll be happy to help.

For a comprehensive review of your personal situation, always consult your legal advisor. Neither Cetera Advisors LLC, nor any of its representatives may give legal advice.

By Anthony C. Williams, CWS, ChFC, MRFC, CLU | Investment Advisor Representative | President & Founding Partner of Mosaic Financial Associates & Orthopaedist Advisory Group | Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor.  Cetera is under separate ownership from any other named entity.