Most people understand the value of having a last will and testament and documents to prepare for incapacity. However, all too often, people forget to check their beneficiary designations. Unless these accounts are updated, the consequences can be permanent. A recent article from the Spokane Journal, “Where the will isn’t always the way,” explains why beneficiary designations create some of the biggest issues seen by estate planning attorneys.
The beneficiary designation is separate and apart from any instructions contained in the last will and testament. The directions in the will don’t apply to any accounts with beneficiary designations. People who dismiss concerns about verifying names on these documents create real problems for their heirs.
In some cases, people don’t add a beneficiary to their IRAs or life insurance policies when they are relatively young and aren’t sure who to name. They want time to consider who they’d like to receive the asset and plan to return to the form at some time. The tasks are then forgotten, and time passes. In some jurisdictions, if no beneficiary is named, the asset reverts to the estate and is subject to probate.
The will doesn’t cover everything, which is why a comprehensive estate plan created by an experienced estate planning attorney is crucial to ensure that wishes are expressed and followed.
Sometimes, so much time passes between when the account is opened and when an estate plan is created that people forget who they have named on the forms. Retirement accounts and pensions established early in life often name parents, siblings, or best friends. However, if the best friend in your twenties is no longer your best friend in your seventies, you’ll need to change the name on the account. Life’s changes require updating beneficiary forms.
A frequently referenced example of this is the Egelhoff case, which made it all the way to the United States Supreme Court. David Egelhoff had named his ex-wife as the beneficiary of both his insurance policy and the pension he received from his employer. The couple divorced, and two months later, he died in a car accident without having updated beneficiary forms.
His children from a previous marriage believed his ex should not receive the funds. Still, the Supreme Court ruled that, because the assets were governed by a federal law, ERISA, which supersedes state laws, the assets were to be distributed to the person named on the form.
It’s crucial to consult with an experienced estate planning attorney to understand how assets, such as pension plans, IRAs and other non-probate assets, pass at the time of death. In some states, a final divorce settlement automatically changes the beneficiary's status. You’ll still need to check with an estate planning attorney in your jurisdiction to be sure.
When an estate plan is created for a couple with prior marriages, an estate planning attorney will often recommend the use of a testamentary trust —a trust established by the will that takes effect upon the death of the testator. In this case, the assets of the estate are transferred into the trust and safeguarded for the trust’s beneficiaries.
Consult with an experienced estate planning attorney to ensure that your assets are distributed as you intend, sparing your family the stress and expense that can arise when they should be focusing on comforting each other and celebrating your legacy.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. Schedule a quick and easy consultation with our estate planning attorney, Sedric E. Collins, Esq., or call 323-900-5450.
