Estate Planning Beyond the Documents - Annuities
When most people think of estate planning, they think of paper. All too often we get caught up in the “product” and lose sight of some other important issues. One of the most common oversights is a careful review and coordination of the estate planning documents with the actual financial accounts and assets.
An attorney can prepare the greatest estate plan in the world, but if the client’s assets are not properly positioned to work with the estate plan - disaster can strike. Let’s look at one example, annuities. Annuities have three components that we’re concerned with: 1) an owner, 2) a beneficiary, and 3) an annuitant.
In some cases, a client comes to me where for any number of reasons they may not be the owner of an annuity of which they are the annuitant. Some people do it for asset protection, some people do it for tax purposes - it happens. Now let’s imagine we put in place an estate plan that uses a trust to funnel and distribute all of the client’s assets among various beneficiaries. If I blindly instructed the client to make the trust the beneficiary of his annuity we have a big problem, a situation commonly referred to as - TRIANGULATION.
Triangulation occurs in an annuity when the owner, beneficiary, and annuitant are three different parties. So what does it mean? The typical effect of a triangulation has a huge impact on who receives the annuity upon the client’s death. Normally, an annuity is paid to the designated beneficiary as everyone expects. With triangulation, the annuity is usually not paid out to the designated beneficiary. A clause in the annuity contract will dictate who receives the annuity, in most cases, it ends up reverting back to the owner. Obviously, when the client came to me this was not his goal.
This is just one example of the importance of approaching your estate plan beyond the documents.
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Index Tags: asset protection, estate planning
