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Why Do You Need to Review and Update Your Beneficiary Arrangements?

November 11, 2018 | by Thomas Day

Beneficiary Designations Override the Provisions of a Will or Trust

Beneficiary designations at death take precedence over the provisions of a will or trust. Regardless of the planning that has been done for distribution of the estate, if there is a designated beneficiary or beneficiaries, that person or persons will receive the asset at death. These beneficiary provisions have from time to time been challenged in court. No court, if the beneficiary and the contract were legal, has overturned distribution to a beneficiary.

Those individuals who create their own wills may not be aware of this pitfall. They may think that the will governs distribution. They may fail to update beneficiaries on those contracts that require it and an undesired distribution may take place. In addition, attorneys will often set up living trusts with a pour over provision at death to a will. Oftentimes, the attorney will fail to follow up on instructions to his clients to change beneficiary arrangements from individuals to the trust as beneficiary. The clients may have forgotten or not be aware of this important step. At death, the money will go to the wrong beneficiaries and not end up in the will.

Remember, in community property states, regardless of the beneficiary designation, a property that was acquired while the couple was married is considered jointly owned. The beneficiary may be forced to turn over a portion of the asset to satisfy this requirement. The surviving spouse always has claim against 50% of the asset regardless of the beneficiary. In common law states, if the surviving spouse does not get at least a statutory allotment of the assets at death, the spouse can petition the court to receive his or her elective share under the law.

Joint Ownership with Rights of Survivorship

Property owned jointly with rights of survivorship is treated very much like property owned with multiple beneficiaries. The difference is often in the distribution to remaining owners if one has died. Unless percentage ownership of specific shares is spelled out, which is not always allowed in all states, only the surviving owners will inherit the property. Any who have died are left out. On the other hand, with beneficiary designations, beneficiaries who have died, without listing any surviving beneficiaries, will result in probate and distribution according to state intestacy laws. This would result in statute determined distribution to wife and children first, then to parents, then to siblings and so on.

Continue Reading - Why Do You Need to Review and Update Your Beneficiary Arrangements?

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