Remember when you were little and your parents would slap your wrist when you were doing something you shouldn’t? Reaching into the cookie jar, twisting your hair, “digging for gold,” etc., etc. There are often times I want to slap my clients’ wrists (figuratively speaking, of course) as if in mama-bear mode. In our family law practice, my worst pet peeves are seeing posts with incriminating details on Facebook or other social media, and observing disrespectful behavior towards the opposing party while their children are present. With estate planning, unlike divorce or child custody, we have much more opportunity for planning and action (versus reaction). There are very simple things a person should and shouldn’t do.
For example, a client should make a list of where his/her assets are – bank accounts; real estate; investments; retirement plans; life insurance; and so forth. This simple task makes it much easier on a surviving spouse, child, sibling, or other beneficiary when you pass. Rather than rummaging through your house and micromanaging your mail to figure out where your assets might be, surviving beneficiaries who are left a concise list of assets and their location save themselves a lot of time, stress, and money. This makes mama-bear happy.
On the shouldn’t end of the “parental-like approval spectrum,” I cringe when I have a probate case where the decedent named one adult child as the beneficiary of her insurance policies and retirement accounts, relying on the assumption that this child would evenly distribute the funds between all siblings. Or when the decedent puts one child on their bank accounts as joint owner for convenience. I’ve seen this too many times to count, and administratively, it’s a nightmare. Sure, most of the time the child who is earmarked as the sole beneficiary or joint owner has every intention, and does – after a lot of extra work – distribute the funds as the decedent wished. However, there are several pitfalls to this plan, and whenever a client has done or wants to do this, I instantaneously think of a parent’s hands slapping their wrist, and politely tell them this is NOT a good idea.
First, the person who you designate as sole beneficiary/joint owner may not distribute the funds as you want. Generally speaking, money of an account or policy will be distributed strictly to the “payable on death” beneficiary or joint owner designated on the account or policy. Nothing, not even a Will to the contrary, requires that individual share the funds with anyone. Second, even if that person intends to fulfill the decedent’s wishes and share the money, this individual may incur an unintentional and less-than-desirable financial burden. For example, if the account is paid out, the beneficiary must report all of the earnings from the account as income on his/her individual tax return. Third, depending on the size of the account; it may cause gift tax and income tax problems to the individual trying to carry out mom/dad’s wishes. Fourth, if the solely named beneficiary dies before distributing the funds, the remaining heirs will most likely be required to wait the closing of a probate (the process of administering an estate, which takes an average of 6-12 months to complete) to receive the funds, and even then there is no guarantee. One last complication worthy of mentioning is the possibility that the named beneficiary is involved in a lawsuit or bankruptcy proceeding. If this occurs, the other beneficiaries can pretty much count on getting nothing. The list of adverse consequences goes on and on.
There is only one instance where you should name one individual as the primary beneficiary of an account or policy, and this is when you want one person to inherit all of the money. Even in that instance, make sure to list an alternate beneficiary in case your first choice predeceases you. In all other circumstances, be sure to properly designate your beneficiaries as you intend for the funds to be distributed. Doing so makes mama bear – and your intended beneficiaries – happy!
The information contained herein is for informational purposes only, and is not legal advice or a substitute for legal counsel. You should not act or rely on any information herein.