One of the most frequently neglected parts of the estate planning process is the proper use of beneficiary designations on life insurance, IRA’s, 401k’s, annuities and other similar assets. Failure to properly prepare and update a beneficiary designation can significantly change the disposition of assets someone intends to be carried out by his or her last will and testament.
I recently represented the Executor of a Chester County PA estate. I have changed the facts, but have maintained the essence of the issues for our discussion. The decedent was survived by a 18 year old son. One month before the decedent died, he signed a will designating a trust for his 18 year old son as the sole beneficiary of his estate believing that this was all of the “estate planning” he needed.
Unfortunately, five years before his death, the decedent submitted a beneficiary designation for his $600,000 life insurance policy naming his then 77 year old mother as a primary beneficiary. I have been told that the expectation was that the decedent’s mother would “watch over” the money for her grandson. The decedent’s mother predeceased him and was not available to collect the insurance proceeds. The contingent beneficiary, the decedent’s brother, is now in line to collect the proceeds from the policy. He has informed the family that he is having financial difficulties and has no intention of sharing the insurance proceeds with the decedent’s son or anyone else for that matter. WOW! This has sent shock waves through the family and significantly diminished the security of the decedent’s son. Although likely contrary to the decedent’s true intention and morally questionable, the decedent’s brother is legally entitled to keep the $600,000 in insurance proceeds and the surviving son does not get one cent.
This case is a flashing neon sign for everyone to check their own beneficiary designation forms and make sure that they are properly integrated into the estate planning process. The decedent should have created a new beneficiary designation form naming the son’s trust under the will as the beneficiary. This would have allowed the trustee to claim the proceeds and then manage the assets for the son until a later date. A will is not always enough!!
