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This Important Estate Planning Step is Often Missed

by Robert J. Green, Esq.
| May 23, 2022 4:22 PM

When you set up your estate plan it is important to coordinate the legal planning documents you or you and your attorney create with the document provided by your retirement account custodian and/or your life insurance carrier called a “Designation of Beneficiary.” A beneficiary designation document with your life insurance or retirement account company allows you to tell that company who it is that should receive the life insurance pay-out or the retirement account balance upon your death. Unfortunately, these beneficiary designations are too rarely coordinated properly with a person’s last will and testament document or trust document, and the results can be extremely problematic.

There must be a dozen or more ways that I’ve seen beneficiary designation problems materialize, but let’s examine just two of the most frequent. First, there is the ex-spouse as beneficiary issue. Imagine learning at the time of your husband’s death that his ex-wife will be the recipient of his life insurance policy pay-out. While the rules are different between retirement accounts and life insurance on this topic, and can be impacted by various state and federal laws as well as the language of a divorce decree, unintended outcomes occur too regularly when an ex-spouse is still listed as a beneficiary on a life insurance policy or retirement account.

The second example of beneficiary designations causing estate problems occurs when a person has a living trust that they have established for the purpose of avoiding the probate court process after their death. Probate court can take many months to complete, and the inefficiency (and sometimes higher expense) of probate make it desirable for some people to avoid it altogether. By establishing a living trust and transferring the assets that would normally be subject to probate court proceedings into that trust, people can avoid probates that would have otherwise been required if a last will and testament were used instead of a trust.

However, if a person or married couple who has established a living trust has failed to list both primary and secondary (back-up) beneficiaries for life insurance and/or retirement accounts, chances are very high that a probate will still be necessary – even though a trust was established to avoid probate. This is an especially irritating outcome because it feels like all of the good planning and effort expended on establishing and maintaining a living trust was undone by this simple oversight.

The failure to coordinate beneficiary designations with the overall planning of one’s estate seems to be most frequent in two circumstances: “do-it-yourself” estate planning (in which no attorney or other estate planning professional was consulted), and planning done by an attorney that does not specialize in estate planning. While the ease and low-cost of online estate planning programs or using your friend’s cousin, the DUI lawyer, as your estate planning professional may seem attractive, there are good reasons to use a very experienced estate planner instead. The good news is that an experienced estate planner can easily help you avoid these potential pitfalls at a comparatively minimal expense.

My law firm is currently offering free telephonic, electronic, or in-person consultations concerning creating or reviewing estate planning documents.

Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Robert at 208-765-6555, Robert@KootenaiLaw.com, or visit www.KootenaiLaw.com.

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.

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