A majority of my working day is spent drafting and interpreting wills, trusts, and powers of attorney. As many people know, these documents create the foundation of any well-drafted estate plan. All too often my clients pay relatively little attention to the beneficiary designations on payable-on-death or transfer-on-death accounts. Many times these beneficiary designations were established on the first day of a new job, during a time when the situation was different, or simply without a great deal of thought. Further, this inattention can be compounded by well-meaning but ill-informed financial advisors who want to “avoid probate” without considering the larger implications to the overall estate plan of revised beneficiary designation.
A recent case that came across my desk helps illustrate the potential pitfalls of not considering beneficiary designations when creating an estate plan. The situation involved three children who were to be treated roughly equally under their mother’s will. The transfer-on-death beneficiary form for a securities account, however, only listed two of the children as beneficiaries. Given the value of the assets of the mother, excluding the child as a beneficiary of the securities account meant that one child would receive approximately twenty percent (20%) of the property owned by his mother at her death (instead of the 33% provided to him pursuant to the language of the will). In this case, the siblings considered the beneficiary designation to be erroneous and executed a family settlement agreement and disclaimers within the estate to ensure all of the children received an equal amount from their mother. This family settlement agreement and disclaimers allow a just result, but the beneficiaries of the securities account would have been well within their rights to take more property than their brother. The “take-away” is that beneficiary designations matter now. With the prevalence of defined contribution plans, many more assets are scheduled to be transferred through beneficiary designation in the future. Further, for many of my younger clients the bulk of their assets are held in qualified plans or in life insurance policies (each with a beneficiary designation). When you stop by your attorney’s office to discuss estate planning, make sure the discussion includes beneficiary designations. Further, you might want to check your beneficiary designations right now.