Beneficiary designations are an important issue in determining where certain assets of an estate end up.  Many think that a will or trust is what determines where everything goes at death.  This is not necessarily so and can be a big mistake to make this assumption.  A last will and testament generally determines where things that are titled in your name go.  Things such as real estate, cars, bank accounts, stocks, bonds, are included in a will.  It is important to realize some assets are owned by contract rather than title that don’t pass through your will. 

Assets that are financial contracts can be annuities, life insurance, IRA’s and any other types of financial accounts.  Each of these contracts may have a beneficiary designation.  This designation says who you wanted to name to receive any proceeds at death.  If your will says everything goes to cousin Susie and your beneficiary designations say Uncle Ed, and all of your assets are in contract assets, it may all go to Uncle Ed.  Many times what happens is that beneficiary designations were never updated or changed.

Here is a real life example.  Anne before she got married and had children, named her sister as beneficiary on her retirement account.  Later, she got married and had children, but the beneficiary designation was never changed.  When Anne died in an unexpected accident, who do you think got her retirement account?  Most would say her husband.  But, the Supreme Court Ruled in the Friedman case, the sister gets the money.  The Court stated the fact that although it was probably her intent to leave the money to her husband and children, the only evidence they have is what is in writing, which was her sister got the money.  What a mess this turned out to be.

A good time to review beneficiary forms and make sure they are up-to-date is right now.  Most people wait till life changing events occur, assume the attorney took care of it, or procrastinate until it’s too late.  Just remember forms cannot be changed after a death occurs; you get no second chance to get it right.  Most Attorneys do a great job but often focus on what are called probate assets and don’t review financial contracts outside of probate, since they are typically handled by the financial professional.  This is an important area where the Financial Professional and the Estate Planning Attorney need to be on the same page together.

If you have Grandchildren, another important issue to review is what the default language on beneficiary forms is.  Do you know the difference between per capita and per stirpes?  If not, pay attention.  Mark’s grandfather David had three children, Douglas, Donald and Lois.  He named them as equal beneficiaries on several annuity accounts.  Unfortunately, Donald died before his father David.  The account was divided two ways between Douglas and Lois when David passed away.  Since the default language was per capita, divided equally among surviving heads, Donald’s children were entitled to nothing.    If the words “per stirpes” were used when the beneficiary form was filled out, Donald’s children would have gotten Donald’s share.  If this is important to you, make sure it’s added to beneficiary forms. 

Fortunately in this actual situation, Douglas and Lois did the right thing and paid to Donald’s children Donald’s share.  They were not legally obligated to do this.  Review beneficiary designations and estate plan documents right away to avoid a potential disaster.

We have seen 90% of families have mistakes when it comes to their beneficiary forms.  So take a few seconds and download the beneficiary form checklist.  This 14 point checklist will help ensure the forms are filled out correctly .