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Beneficiary Designations
An Often Forgotten Key in Trust Funding
by Jacqueline Skay
My office is currently involved in probate proceedings for a woman who had a revocable trust. I know you've probably heard repeatedly that if you have a properly "funded" living trust your heirs will avoid probate when you die. That's not always the whole story. You can have all of the assets previously titled in your name alone transferred to the trust and your family may still end up in probate proceeds of life insurance policies or to establish a guardianship of the estate of children of predeceased beneficiaries.
It is critical that beneficiary designations on retirement plans, life insurance and annuities be kept up to date. In the case referred to above, a husband and wife (call them Harry and Wendy), established a revocable trust prior to the husband's death. They also had life insurance policies for which they named each other as the beneficiaries and they named their respective estates as the contingent beneficiary. Harry died first and about three years later Wendy died. Wendy had never bothered to change the beneficiary designation after Harry died. So, when Wendy died the life insurance was payable to her estate. Because the life insurance proceeds exceed $166,250 they are subject to probate and must go through the probate process before being distributed to Wendy's heirs. If Harry and Wendy had named their living trust as the contingent beneficiary on their life insurance the expensive and time consuming process of probate would have been avoided.
For single persons with multiple beneficiaries I often recommend the trust be named the primary beneficiary. For instance, I recently had a case in which a single woman had three adult sons. Two of her sons had minor children of their own. My client had filled in the beneficiary designation as follows: "My children equally or all to the survivor of them," I asked her who she intended the "survivor of them" to be. Would she want the predeceased son's share to go to his children (her grandchildren) or back to his other brothers? She said for the two who had children she would want their shares to go to their children but not to either of their wives. She said she loved both of her daughters-in-law but felt neither of them was good with money. If she had left the beneficiary designation the way she had it, it is not clear how the insurance company would have divided the proceeds on her death if one of her sons predeceased her. Maybe they would have interpreted her designation to mean the proceeds should be divided into three shares, with one share going to the minor children of the predeceased son, or maybe they would have divided it into two shares for the remaining two sons.
If the company divided the proceeds into three shares and then divided the share for the predeceased son into shares for his children (my client's grandchildren), the mother of the grandchildren would be the most likely candidate to go to court to be named guardian of the estate of the grandchildren and take control of those assets. This is exactly what my client did not want. She did not want the assets to go through a court proceeding (such as guardianship) and she certainly did not want either of her son's wives to be in control of those assets.
These are just a couple recent examples I have seen in which naming the revocable trust as a contingent or primary beneficiary (depending on the circumstances) is critical to avoiding probate court proceedings. If you have not recently reviewed your beneficiary designations for retirement plans, life insurance policies and annuities, I urge you to do so. You may contact Jacqueline Skay's office at 760-745-7576.
An Often Forgotten Key in Trust Funding
by Jacqueline Skay
My office is currently involved in probate proceedings for a woman who had a revocable trust. I know you've probably heard repeatedly that if you have a properly "funded" living trust your heirs will avoid probate when you die. That's not always the whole story. You can have all of the assets previously titled in your name alone transferred to the trust and your family may still end up in probate proceeds of life insurance policies or to establish a guardianship of the estate of children of predeceased beneficiaries.
It is critical that beneficiary designations on retirement plans, life insurance and annuities be kept up to date. In the case referred to above, a husband and wife (call them Harry and Wendy), established a revocable trust prior to the husband's death. They also had life insurance policies for which they named each other as the beneficiaries and they named their respective estates as the contingent beneficiary. Harry died first and about three years later Wendy died. Wendy had never bothered to change the beneficiary designation after Harry died. So, when Wendy died the life insurance was payable to her estate. Because the life insurance proceeds exceed $166,250 they are subject to probate and must go through the probate process before being distributed to Wendy's heirs. If Harry and Wendy had named their living trust as the contingent beneficiary on their life insurance the expensive and time consuming process of probate would have been avoided.
For single persons with multiple beneficiaries I often recommend the trust be named the primary beneficiary. For instance, I recently had a case in which a single woman had three adult sons. Two of her sons had minor children of their own. My client had filled in the beneficiary designation as follows: "My children equally or all to the survivor of them," I asked her who she intended the "survivor of them" to be. Would she want the predeceased son's share to go to his children (her grandchildren) or back to his other brothers? She said for the two who had children she would want their shares to go to their children but not to either of their wives. She said she loved both of her daughters-in-law but felt neither of them was good with money. If she had left the beneficiary designation the way she had it, it is not clear how the insurance company would have divided the proceeds on her death if one of her sons predeceased her. Maybe they would have interpreted her designation to mean the proceeds should be divided into three shares, with one share going to the minor children of the predeceased son, or maybe they would have divided it into two shares for the remaining two sons.
If the company divided the proceeds into three shares and then divided the share for the predeceased son into shares for his children (my client's grandchildren), the mother of the grandchildren would be the most likely candidate to go to court to be named guardian of the estate of the grandchildren and take control of those assets. This is exactly what my client did not want. She did not want the assets to go through a court proceeding (such as guardianship) and she certainly did not want either of her son's wives to be in control of those assets.
These are just a couple recent examples I have seen in which naming the revocable trust as a contingent or primary beneficiary (depending on the circumstances) is critical to avoiding probate court proceedings. If you have not recently reviewed your beneficiary designations for retirement plans, life insurance policies and annuities, I urge you to do so. You may contact Jacqueline Skay's office at 760-745-7576.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Copyright 2023 © by Jacqueline M. Skay. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.
Copyright 2023 © by Jacqueline M. Skay. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.