While establishing your Last Will and Testament or Inter Vivos Trust Agreement is an important step in creating an effective estate plan, there are other tasks that are equally important. In some situations, people forget to update the beneficiary selections to be consistent with their overall estate plan.
At Durden & Mills, PC, we have seen the unfortunate reality of what happens when an ex-spouse forgets to change a beneficiary selection after the divorce is finalized. In Georgia, the law does not require an ex-spouse to forfeit their interest in the unintended life insurance proceeds after a divorce, unless their divorce decree provides an express waiver of the life insurance policy.
Some of the common mistakes associated with a beneficiary selection include the following:
- Your Will Does Not Trump The Designation: Many people mistakenly believe that a change to their Last Will and Testament will change an old beneficiary designation. That is simply not correct. Since beneficiary designations for life insurance, retirement benefits, bank accounts, etc. are for non-probate assets, your Last Will and Testament will have no impact on the disposition of said assets at the time of your death. Instead, the beneficiary designation will typically be effective immediately upon your death.
- Not The Kids: While many young parents want to name their children as the beneficiary of their new life insurance policies, that is typically a terrible idea. If you do not properly name a trust or made other appropriate arrangements for the management of the funds in the event of your untimely death, you are creating a nightmare for the whoever is tasked with handling your affairs. Since young kids cannot claim the funds themselves, somebody will be required to petition the probate court to get authority to obtain the proceeds. Then, the probate court will “oversee” the spending of those funds for years to come until the children reach the age of majority. During that time, significant funds will be wasted paying for probate bonds, attorney’s fees and court costs. A simple testamentary trust can avoid these types of problems with little upfront cost.
- Forgetting The Details: In some situations, individuals may list several people as co-beneficiaries of a life insurance policy. However, they forget to include details on how it should be divided if one of the identified persons is deceased. Should their share go to their children or should it lapse? Should
- Keeping Too Many Secrets: If nobody knows that a certain account exists, it is always possible that nobody will ever find it. All of your accounts should be properly identified in some organized format so that your loved ones will be able to timely locate all of your assets and your wishes will be effectuated.
- Don’t Forget About Taxes: While many families do not have to worry about estate tax consequences, the fortunate reality is that some people should. At the present time, the estate and gift tax exemption is $5.49 million per individual. Is somebody has a few million in assets, plus a $2M insurance policy, that could be problematic. Instead, those types of individuals should consider establishing an Irrevocable Life Insurance Trust.
- Disqualification for Public Benefits: In the event you leave a disabled and/or impoverished beneficiary significant financial assets via a traditional beneficiary designation, you may ultimately cause them to become disqualified for public benefits. If your beneficiary has special needs and/or relies on needs based public assistance, you may want to consider establishing a Special Needs Trust to protect the long term financial security of the beneficiary.
- Forgetting Continent Beneficiaries: Generally, designated beneficiaries are only entitled to receive the asset if they survive you. Therefore, if you only name one designated beneficiary and hat person predeceases you, then your non-probate asset such as a life insurance policy or retirement account is likely going to ultimately end up in your estate. This can result in unintended consequences as the funds would have to be used to pay estate debts prior to disbursement to the heirs/beneficiaries.
If you want to review your beneficiary designations and establish a comprehensive estate plan, please call the Estate Planning attorneys at Durden & Mills, PC to schedule a free consultation. Call us at (706) 543-4708 and we’ll be happy to meet with you.