My wife and I have a joint brokerage account. My son lives in England and is not a U.S. citizen. Our financial adviser has told us that we cannot name him as a beneficiary on the account to receive it on our demise. Can I make this happen using our will and, if so, how should this be worded to ensure it works in my son’s favor?
This is a contractual issue with your brokerage company, rather than a legal one, though it’s affected by legal concerns. Banks and brokerage companies have become very afraid of running afoul of anti-money-laundering laws so they’ve made it very difficult for non-U.S. residents to own brokerage accounts. In fact, it’s really more a matter of residence than citizenship. We’ve run into difficult hurdles with U.S. citizens living overseas having accounts at investment firms in the U.S., such as Fidelity Investments.
The ability to name a beneficiary to an account depends on the brokerage house. That’s why it’s a matter of contract. You and your wife can name your son as your heir under your wills so the account will pass to him after you have both died. But it would be good to name a local person as personal representative to carry out the terms of the will.
You can also do this through a revocable trust, naming your son as the ultimate beneficiary and transferring your account to the trust. This would avoid probate. But it would still work better if you name someone local to serve as your successor trustee after both you and your wife have passed away. Our experience is that if you were to name your son as trustee, he could run into obstacles in managing the account.
In terms of the wording of your will or trust, if you and your wife want your son to receive the balance of your estate, your documents can simply name him as the ultimate beneficiary. However, it sounds like you may want him to receive the specific account and for the balance of your estate to pass elsewhere. In that case, your documents should refer to the account specifically, saying something like this:
I give my account no. X123456 at Fidelity Investments to my son, Gideon.
This, however, does present some potential problems. First, if you moved the account to another institution or the account number got changed for any reason you would have to update your estate planning documents. Sometimes this happens when the owner because incapacitated due to illness or dementia and the person stepping in to manage their affairs consolidates accounts. Then it could be too late to update the estate plan. The result can be litigation.
A second issue, especially given the difficulties we discussed above with a non-U.S. resident owning an account, it may be easier for all concerned if your son received the proceeds from the sale of the account assets rather than the account itself. To cover these issues, the language of your documents might read:
I direct my personal representative [or trustee] to sell the investments in my account no. X123456 at Fidelity Investments and pay the proceeds to my son, Gideon. If, however, at the time of my death I no longer own such account, I give Gideon $___________.
A couple of other issues you may want to cover: You might want to limit your son’s bequest to a percentage of your estate just in case your estate is reduced significantly over time, perhaps for long-term care expenses. You also may want to say what happens if your son were to die before you or your wife. Would you want his bequest to disappear or to pass to his spouse, partner or children, if any?
There always seems to be another possible course of events in estate planning.