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  • Writer's pictureMLO

Don’t Forget Death Beneficiary Designations in your Estate Planning.

As you work on your estate plan, your focus will properly be on deciding who will be the beneficiaries of your estate. You will also be considering whether any special concerns need to be addressed concerning a beneficiary. For example, this may include a trust for the specific needs of a child who is a minor or is otherwise unable to handle his financial affairs. Once these have been decided, you will then have a will prepared, possibly a living trust, powers of attorney and other related documents to properly complete your estate plan.

Once these have been signed, your work is now done and everything will work as intended....right? The answer will often depend upon the type of assets you own and the type of estate plan you have executed. As discussed in previous articles, your last will and testament will generally only cover assets that are in your name at the time of death and with no co-owners or death beneficiary designations on them. A revocable living trust will cover only assets owned by the trust at the time of your death or that are payable to the trust upon your death. These are the documents you have signed to reflect your decisions regarding your estate plan. The potential problem is that some assets will bypass or override your will or trust unless you take the appropriate steps to coordinate those assets with your estate plan documents.

As a simple example, your will may provide that your estate will pass in equal shares to your brother and sister. Everything flowing through your last will and testament will follow those instructions. If you have a life insurance policy that identifies only your sister as the death beneficiary, however, then only your sister will receive the life insurance proceeds. The death beneficiary designation controls and will override the terms of your will. In order to coordinate this asset with your estate plan, you will need to complete a new death beneficiary designation form with your insurance company identifying both your brother and sister as the beneficiaries under the policy.

As another example, you may be a single parent with a minor child. You have decided to leave your estate in a trust for your child’s benefit so that your assets will be managed for the child’s benefit until he attains age 30. These trust arrangements may be included in your last will and testament or may be structured as part of a living trust. Assets flowing through your will or through the trust will follow those instructions. If a life insurance policy has the child specifically named as the death beneficiary, however, then those proceeds will not be controlled by the trust provisions you so carefully developed. Rather, the proceeds will be paid directly to the child or to his guardian if he is still a minor at that time. Again, in order to coordinate this asset with your estate plan, you will need to complete a new death beneficiary designation form with your insurance company to make the proceeds payable to the trust you are establishing for your child.

Assets with possible death beneficiary designations are numerous. They will include life insurance policies, annuities, 401K plans and individual retirement accounts. They may also include brokerage accounts and bank accounts which can have “transfer on death” or “payable on death” beneficiary designations as discussed in prior articles.

In simple terms, you want to insure that all of your assets dovetail with the goals you have set in preparing your estate plan. To this end, the proper completion of death beneficiary designations is a key component in making sure your overall estate plan will work as intended. Of course, working with experienced estate planning counsel is always recommended.


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