Friday, April 11, 2014

Beware of Trump Cards in an Estate Plan, Rule #3 - The Beneficiary Designation

Lynn A. Dean
Estate Planning Attorney
This post is the last of the 3-part series: Beware of Trump Cards in an Estate Plan - Three Rules.

Estate Planning Documents can be undone (or trumped) by a number of things and one of them is Beneficiary designations.  Beneficiary designations are contracts.  The owner of the money (IRA, Insurance policy, annuity, bank account) tells the holder of the money (bank, insurance company, broker) where they want the money to go when they die. Most beneficiary designations allow you to name a primary beneficiary and a contingent beneficiary.

A beneficiary designation will trump anything said in a Will or Trust. The example we have is the IRA which names the first wife as the beneficiary. The second wife contacted us, and asked what could be done. He has been married to the second wife for more than 20 years. When the client comes to me, I will strongly recommend that they check all of their beneficiary designations, to make sure they are correct. A divorce does not automatically terminate a beneficiary designation. A beneficiary designation that says “my estate” will cause the asset to go through probate. A proper beneficiary designation for an IRA is a complicated question. Generally naming a living breathing person is the best choice, but for a couple with young children, the trustee of the trust may be the best choice.

A second example is the husband who thought he had protected his children by naming them as beneficiaries of a portion of this trust. He left his $1 million IRA to his wife, by beneficiary designation, with his three children as contingent beneficiaries. He may have assumed (incorrectly) that anything she didn't use during her lifetime would go to his children. Instead, she immediately took control of the entire IRA, and changed the beneficiaries to her children. It is now possible to set up a trust to receive the proceeds of the IRA, distributing the required minimum distribution to the spouse during her lifetime, and the remainder to the children of the IRA owner.

Estate Planning can be complicated, but at the Law Office of Lynn A. Dean, we make it easy.  Contact us to schedule a consultation to discuss your situation.  


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