Dear Len & Rosie,

My wife passed away a few years ago. If my daughters are listed as beneficiaries for my 401k plan, an IRA, and savings account, will they collect upon my death? The company I worked at for 36 years advised me that my daughters should let them know when I die, and that they will send them forms to fill out so they can collect. I just want to be sure about this.

Charles

Dear Charles,

When you pass away, your daughters will get the money from any insurance policies and bank and investment accounts for which they are named as beneficiaries. To collect, all they will have to do is provide proof of your death with a death certificate, and fill out a couple of forms.

Beneficiary designations are a poor man's means of avoiding probate.

Insurance policies or accounts that you designate beneficiaries for will not be in your probate estate, although they will remain subject to federal estate tax.

The problem is that you get what you pay for. Pay on death clauses are inflexible. Usually you will find a very small box on a form in which to plan your estate. How much information you get into the box depends on how small you can write. You may have space to designate one or two beneficiaries, but that's it. If you want to do anything more complicated than that, you're out of luck. Also, if you change your mind as to who should get what, you will have to contact each and every bank and investment company and fill out more paperwork.

The alternative is a revocable trust. If you own a house, you should probably have a trust anyway. Your trust would be the single document in which you can spell out exactly who gets what when you die.

You can transfer your investments into your trust and even make it the beneficiary of your life insurance policy. If you change your mind about the distribution of your assets, you will have only one document to revise, instead of many. More importantly, with a trust you can provide for the proper management of whatever you leave to minor beneficiaries, who shouldn't inherit everything all at once, or disabled beneficiaries who need Special Needs Trusts to preserve eligibility for SSI, Medi-Cal, and other public benefits.

As for your IRA and 401k, naming your daughters as beneficiaries is the right thing to do. Upon your death they can elect to roll these accounts into Inherited IRA's that will allow them to stretch out distributions (and the income tax liability) from these accounts over their own lifetimes.

Whatever you decide to do, don't forget to create a durable general power of attorney and an advance health care directive. If you should ever become incapacitated, your daughters will need these important documents to be able to provide for your care.

Len & Rosie

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 996-4505, or www.lentillem.com. Len also answers legal questions each weekday, noon to 12:45 p.m., and Sundays, 4-7 p.m., on KGO Radio 810 AM.