Is it Time to Check Your Beneficiary Designations?

This is the time of year when we see a lot of new clients who are following up on their New Year’s resolutions to create or update their Living Trusts.

But when was the last time you checked to see whom you named as the beneficiary on your retirement account, life insurance policy, or annuity? You’d be surprised at the number of people who have prior spouses or deceased relatives still named as beneficiaries on retirement accounts at former employers, or on life insurance policies purchased long ago and forgotten.

Updating a beneficiary designation: It supersedes your Will or Trust

The beneficiary designation is a legally binding document that supersedes your Will or Trust; neither will override the person you have named as your beneficiary in a life insurance policy, annuity or retirement account.

If something had happened to our client, his ex-wife would have inherited most of his assets

This story, unfortunately, is not that uncommon. It illustrates the importance of periodically reviewing your Trust allocations. Our client hadn’t reviewed his Trust in more than eight years, and he was shocked to discover that if something happened to him, all of his assets, exclusive of the home he held with his current wife, would go to his ex-wife, who was still identified as his Successor Trustee, his Power of Attorney and Agent for his Advance Healthcare Directive. We scheduled an appointment to completely rewrite his Living Trust. 

A forgotten 401k plan beneficiary update results in husband’s receiving all of wife’s assets

Another client’s wife had worked for a large multinational for many years. It was a second marriage, and when she became seriously ill with cancer, she created a Living Trust. She wanted her two children and husband to each get one-third of her assets. However, she failed to update her beneficiary designation for her 401k plan, so that sizeable account went directly to her husband. He wanted to honor her wishes, but if he cashed in the 401k and paid it to the kids, he would have taken a huge hit on his taxes.

He and the kids set up an IRA in his name, and the kids were named as the beneficiaries. They agreed that, with each distribution he made to them, he would withhold enough to cover the taxes. While this ultimately worked out, it would be an ongoing administrative hassle. It could have been avoided by updating the retirement plan beneficiary form at the wife’s employer. When identifying your primary beneficiary, you should also name a contingent beneficiary. In this way, if the primary beneficiary predeceases you, you have already specified who should inherit the account.

A Living Trust is an important part of estate planning, and our comprehensive Trust package includes a Power of Attorney and Advance Healthcare Directive. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Estate Rage: Inheritance Disputes Are on the Rise

James and Virginia Null were always fair, dividing everything equally among their three daughters. They worked hard at avoiding any hint of favoritism—going so far as to buy three sets of everything—china, crystal and jewelry—so there would be one to pass on to each daughter.

But fairness took a nosedive when Virginia Null died in 2000 at the age of 62. Within weeks of her death, her husband changed his financial arrangements.

• He designated his middle daughter Amy as a joint tenant on his financial accounts with the sole right of survivorship.
• He added Amy to the title to his house.
• Upon his death in June 2002, almost all of Mr. Null’s assets, estimated at several hundred thousand dollars, went directly to Amy. Her two sisters received next to nothing.

This article in The New York Times, Personal Business; A Legacy of Rancor: Estate Fights Rising, illustrates a battle that’s becoming increasingly frequent.

Mr. Null’s Will, written in the early 1980s, stated that his estate was to be divided equally among his three daughters, but “the right-of-survivorship clause and joint tenancy upstaged the will completely,” said Adam Gaslowitz, an Atlanta lawyer who is representing the two other sisters who are contesting the estate.

Litigation more common as family strife over inheritances increases

Lawyers say this is typical of suits contesting Wills, often filed by baby boomers whose parents are now in their 70s and 80s. Mr. Gaslowitz has written on this topic for law journals, and he has seen a steady increase in estate fights among the children.

“A lot of people are living off the parental dole. As their parents near the end, these children grab as much as they can and are far less willing to share it with their siblings.” An uneven economy, layoffs and shrunken retirement plans have hurt many. A huge number of baby boomers have done nothing to prepare for retirement, and accumulated assets from their more frugal parents become a critical part of their retirement planning. When things go badly, people realize that they need their inheritances.

The huge transfer of wealth was misstated

”There had been some papers in the early 1990s that suggested there would be this large transfer of wealth from the current retirees to the baby boomers,” said John Gist, the associate director of the AARP’s Public Policy Institute. ”But we concluded that this was not going to be the huge windfall that everybody had thought.”

Amy stepped in after her mother died

In the case of the Null estate, the two sisters argue that Amy Osborne–who lived ten minutes away from their father and handled many of his financial affairs after their mother died–persuaded him to change his financial arrangements. The sisters believe he had no idea what he had done, that he was vulnerable and dependent, recovering from complicated heart surgery.

Amy’s lawyer assures us that he knew exactly what he was doing

“If elderly parents favor one child over others because of that child’s contribution to the parents’ wellbeing”, they have every right to leave their estate to those who are most deserving.

As the family planned the funeral, the other sisters began to realize that something was wrong. Shortly thereafter, Amy served them with papers—they had ten days to contest the distribution of the estate. Blindsided by the turn of events, the sisters contacted a lawyer. Said one sister, “I thought this would never happen in my family. I was so naïve.” The bottom line: When there’s money involved, funny things happen in even the closest families.

It’s important to note that even with a Living Trust, assets that have a named beneficiary, such as a life insurance policy, an IRA or a 401(k), assets held in joint tenancy, and those that are Payable or Transferable on Death fall outside a Living Trust.

Is a Living Trust something you keep putting off? Make an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.