Many people own assets that will not be controlled by their Will or Trust. Instead, on the owner’s death, those assets are distributed to designated beneficiaries identified by the owner. Such assets include life insurance, retirement accounts, annuities, stock option plans, and health savings accounts.
Because these assets pass outside the terms of your Will or Trust, you should review your beneficiary designations periodically to ensure that the designation is as you still want, and to ensure that the named beneficiary is consistent with the rest of your estate plan. Also review and possibly update beneficiary designations when there is a significant event in your life. What are these significant events?
Divorce
Automatic events may occur at the time of your divorce. If you live in a State with a Beneficiary Revocation statute, such as Iowa or Illinois, then on your divorce the designation of a spouse or close relative of a spouse is automatically revoked. A contingent beneficiary becomes the primary beneficiary if the automatic revocation deletes a primary beneficiary. If, after the automatic revocations occur, there is no named beneficiary, the asset will be distributed according to terms set by the holder of the asset. These automatic events may not be what you prefer, and the only way to ensure the asset passes as you prefer is to sign a new beneficiary designation. The designation must be processed by the asset holder before it is effective.
Death of a Loved One
A review of beneficiaries is appropriate on the death of a loved one, to confirm whether and how you named the deceased as a beneficiary. If the deceased was your primary beneficiary, the contingent beneficiary is who will receive the asset after your death. Is this what you want? Consider whether a different beneficiary should be named and whether the pattern of beneficiaries is consistent with the rest of your estate plan. Confirm with the asset holder what happens to the asset if no beneficiary survives you.
Disability or Incapacity of Loved One
If your loved one is “only” disabled or incapacitated at the time of your death, receipt of your asset may not serve their best interests, especially if they are receiving State assistance. It is possible that they will become ineligible for State assistance if they receive the asset. It is also possible they will be better served if your asset can be used to fund a trust drafted for their benefit, ensuring they will not lose the assistance they are presently receiving. Talk with your attorney about this.
Minor Beneficiary
Many people avoid naming a minor as a beneficiary of an asset, knowing that the asset holder may not pay the proceeds directly to the minor, but instead will require that a Conservator or Guardian be appointed via a Court proceeding, to receive the asset and later deliver the asset when the minor reaches some minimum, and perhaps inappropriate, age like 18 or 21. Interestingly, it is not uncommon to insert the phrase ‘per stirpes’ after the name of an adult beneficiary, so that the asset will pass to the descendants of a deceased beneficiary, without considering whether a descendant is a minor or has a disability. Is there a better option for minors? What will the asset holder require when a minor is a beneficiary?
Changed Estate Plan
With so many of our estates comprised of assets that have a designated beneficiary, make sure your pattern of named beneficiaries is consistent with a changed estate plan.