E290 Professional Executor vs Beneficiary Designations for Solo Agers

E290 Professional Executor vs Beneficiary Designations for Solo Agers

A few Solo Agers have asked if they can use beneficiary designations instead of a traditional estate plan. We’ll explain some pros and cons of beneficiary designations, and why a professional executor may work better.

Why traditional estate planning doesn’t work for Solo Agers

Why traditional estate planning doesn't work for solo agers

Most traditional estate plans are centered around a friend or family acting as your executor to manage probate. Solo Agers often don’t have an assumed family member to serve in this role. Sometimes a Solo Ager has a friend or sibling, but for several reasons, it wouldn’t work out for those loved ones to serve. For example, friends and siblings may be the same age or older than the Solo Ager. There also may not be the same level of trust that one would have with a spouse. Or maybe the relationships are estranged.

For the reasons above, Solo Agers seek to avoid the need for an executor altogether. It’s not hard to blame them. For example, we had a Solo Ager client (no kids, no family, no close friends) who could not get it through to other attorneys that she had no one to appoint. She became so frustrated with their standard advice that she wanted to avoid appointing an executor altogether.

Why Solo Agers like the idea of beneficiary designations

Why solo agers like the idea of beneficiary designations

Beneficiary designations go directly to the heirs and “avoid probate.” This is common with life insurance and retirement plans. When someone dies, the beneficiary just fills out and submits claim forms. There is no need to go through probate for that particular asset.

Sounds easy and great, right? But in most cases, using only beneficiary designations does not work. Sure, it would work for a particular account, but realistically, you are probably not avoiding probate altogether. In order to completely avoid probate, you need a 100% perfect beneficiary designation plan. This means you cannot leave any assets out of your plan (zero assets left in probate, zero lingering debts or taxes). This becomes highly unlikely.

Any outstanding debts at the time of death need to be paid by the estate representative. Because of this, probate has to happen anyway to figure out pro-rata which accounts need to be reduced to pay your funeral bill or lingering medical bills, unsecured mortgage or credit card bills.

If all assets go to named beneficiaries, then the IRS goes directly after your beneficiaries. Your heirs will be harassed until the taxes and debts are paid. No one wants that for their loved ones. Additionally, it’s unlikely that someone will volunteer to act as your executor and deal with these issues.

Why Solo Agers like the idea of a professional executor

Why solo agers like the idea of a professional executor

The main attraction is that you appoint someone (experienced) to handle everything. The worry is that it will be hard to find a professional executor and it will also be expensive to hire one.

Regarding the cost, the executor’s fee is set by state law. This fee is the same whether you hire your 19-year-old unemployed nephew, or the esteemed professional executor. It is more bang for your buck to go with the professional!

How do you find a professional executor? First, you know that we can fill that role! Second, you can go to a bank and see if they have a trust officer who can serve (even if you don’t have a trust). However, most banks have liquid minimum asset requirements of 2 million or more (meaning this cannot include your home).

How do you name a person as your executor? You don’t necessarily have to pay an estate attorney to draft your will. While it’s usually a better idea to hire an attorney to draft the will (especially in complex situations), there are plenty of good estate planning software programs you can use yourself.

If you find a professional executor, interview them before you commit to appointing them. To learn more about executors and estate planning, check out my book, “The Solo Ager Estate Plan.” For a free E-copy, click the link below.

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