Beneficiary: It’s Time to Update Yours
A beneficiary is easy to name on a life insurance policy, deferred compensation account, or estate plan. However, those beneficiaries are often outdated, or through no fault of your own, they carry significant risk.
Outdated Beneficiary Designations
Having beneficiary names listed on policies and accounts that are no longer current to your wishes is more common than you can imagine. Moreover, the chances are you have beneficiaries listed right now that either does not include someone or include a person you no longer wish to receive the benefit.
Here are some examples:
- Previous marriages. If you are currently divorced or remarried and still have your former spouse listed as a beneficiary on a policy or account, you will not like the outcome if something happens to you. For instance, your ex-spouse will receive all the beneficiary proceeds by law. I have had widows desperately contact me after their husband died after finding out his ex-spouse is listed in the deferred compensation account and life insurance policy. However, there is nothing that can be done. It is required to locate the former spouse and distribute all funds to them.
- You do not list all your children. I cannot count the times my client’s insurance policies did not list the last one or two children born to them.
Minor Children Beneficiary
You can list a minor child, grandchild, or any other person under 18 as a beneficiary. However, it is rarely the right thing to do. First, suppose you have listed a minor as a primary or successor beneficiary on a policy or account, and you die before they reach 18. In that case, all the proceeds will go to Probate and stay under the court’s control until they reach 18.
Secondly, not many people want their children to receive large sums of money at that age, which is when Probate will release it all to them. As I like to say, 18 may be the age of the majority but is rarely the age of maturity.
It would be best if you named your Living Trust as the beneficiary until your child is over 18 and reaches the age you choose to receive the funds. Therefore, your Trust will provide for their education, care, and maintenance. All payments would be under the control of your chosen Trustee and private, outside the court’s supervision and expense.
No matter what age we feel is appropriate for our beneficiaries to receive their inheritance, there is no way of knowing whether they are going through a divorce, bankruptcy, or lawsuit at the time of your death. Importantly, listing your Living Trust as beneficiary protects against those risks with Spendthrift Provisions, preventing any creditor or spouse from claiming the gift of your estate.
Let’s say one of your beneficiaries acquires a disability by accident or illness before death. Consequently, your estate funds will go to the government for reimbursement for public benefits, or your beneficiary will lose their SSI or Medicaid benefits. However, you can prevent this from happening with a Living Trust with precautionary Supplemental Needs provisions.
At the end of your life, or if you become incapacitated, if you have property or bank accounts in your name, you are at risk of Probate.
- A Will = Probate Court. The rule is no one can legally sign your name. Therefore, all assets in your name are subject to the complete probate process at your death or incapacity. The process averages 18 months and is costly.
- Living Trust completely avoids Probate.
- A Living Trust estate plan includes Health Care and Financial Power of Attorney documents and a Last Will and Testament. A Will provides for guardianship of minor children and to “pour over” any assets still in your name at your death out of Probate.
- Your life insurance policies and deferred compensation accounts can name your Living Trust as beneficiary, subject to essential tax considerations.
A Revocable Living Trust is a written, legal document that allows you to privately and efficiently pass your assets (real property, bank accounts, stock, saving certificates, personal property, etc.) to your family, friends, or charities after your death – outside of Probate Court. Your life insurance policies and deferred compensation accounts can name your Living Trust as beneficiary, subject to essential tax considerations.
Contact us today for further information or visit Tuohy Law Offices now.
17W220 22nd Street
Oakbrook Terrace, Illinois, 60181
This blog entry is for information and planning purposes. Therefore, it is not legal advice. Please do not use this blog as legal advice, which turns on specific facts and laws in specific jurisdictions. No reader of this blog should act or refrain from acting based on any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country or other applicable licensing jurisdiction.