Depending on your onboarding process, there can be a lot of moving parts. With all of the financial forms to be completed, a new employee can feel overwhelmed. It is not enough to simply fill out the forms, however—the employee must properly complete them to ensure that their intentions are carried out.

Beneficiary Designations

Beneficiary designation forms are a great way for your employee to choose who should receive their life insurance policy death benefit or a retirement account balance, if your company is offering either of these benefits. The beneficiary designation forms allow the employee to name a primary beneficiary and a contingent beneficiary (as a backup if the primary beneficiary is deceased or does not want the money). The employee can choose one person as the primary beneficiary, two people to split the death benefit or account, a charity, or even a trust. In some circumstances, the employee may be required to list their spouse as the primary beneficiary of the retirement account or consent to someone else being named the primary beneficiary. 

Because the beneficiary designations will trump any language in a will or trust, it is important that these forms are properly completed. If the employee does not fill them out and subsequently dies, the account or death benefit will be distributed according to the default rules of the account or policy agreement, which may give the account or death benefit to the employee’s spouse or heirs (as defined by applicable state law) or to the employee’s estate (which will require the employee’s loved ones to go through the costly, time-consuming, and public probate process). 

Stock or Other Ownership Interests

If you are offering your new employee stock or other ownership as part of their employment, it is important that the employee understand what that entails before they sign any forms. Putting your employee in touch with experienced financial, tax, and estate planning professionals can help the employee understand what they have been given and how to protect it. In order to properly plan for what has been given to them, the employee will need to know the following information:

• what type of interest they have been given
• when the interest in the company vests
• whether there any tax obligations or reporting requirements
• what will happen if the employee leaves your employment
• what happens if the employee dies while still employed
• how the employee can pass along their interest to their loved ones through the employee’s estate plan

To help safeguard the benefits you may be offering your employee, a foundational estate plan that includes the following elements is key to tying everything together for a successful future:

• Last will and testament. This document, also known as a will, can be used to name an executor or personal representative to wind up the employee’s affairs and direct what should happen with the employee’s money and property. The employee’s family will typically have to go through probate to receive any money or property controlled by the will.
• Revocable living trust. As an alternative to a will, a revocable living trust allows the employee to avoid the probate process by transferring their money and property to a trust or naming the trust as a beneficiary of the account or property. In most cases, the employee continues to manage and enjoy the use of the money and property for the employee’s lifetime. If the employee is unable to manage their financial affairs, a successor trustee, previously selected by the employee, can step in without court involvement and manage the trust on behalf of and for the benefit of the employee. The employee can also designate what will happen to the trust’s money and property at the employee’s death. 
• Financial power of attorney. This document allows the employee to choose a trusted person (an agent or attorney-in-fact) to handle the employee’s financial matters (e.g., sign checks, open a bank account, etc.). The employee can outline in the document the scope of the agent’s authority and when the agent can act based on the employee’s wishes. Without this document, a court will need to appoint someone if the employee needs someone to handle a financial matter on their behalf.
• Advance Health Care Directive. In California, an Advance Health Care Directive typically serves as both a Medical Power of Attorney and a Living Will.
  • The Medical Power of Attorney allows the employee to appoint a trusted person as a decision maker to communicate or make healthcare decisions on the employee’s behalf if the employee cannot do so. Absent this designation, the court may be required to name someone to make these decisions for the employee. 
  • A Living Will allows the employee to convey their wishes regarding end-of-life decisions. Properly enumerating the employee’s wishes can make it easier for the employee’s wishes to be carried out and reduce tensions that can be brought on by uncertainty.
• HIPAA authorization form. A Health Insurance Portability and Accountability Act (HIPAA) form allows the employee to grant specific individuals access to the employee’s medical information (e.g., to get a status update on the employee’s condition or receive test results) without giving those individuals the authority to make decisions. Providing trusted people with this information can help reduce tensions among the parties because everyone has access to the same information, even if only one party has the authority to make decisions.

Hiring a new employee is an investment. Assisting your new colleague with a proactive approach to their estate and financial planning can serve as both a warm welcome and a great employee benefit. Not only does it set your colleague up for a successful future, it also demonstrates that the company is committed to the success of its employees in and out of the workplace. If you are interested in taking a more proactive role in helping your employees build a secure financial and estate planning future, give us a call today. We are available to meet with you, an employee, or your company as a whole.