Change Happens. Make Sure Your Beneficiary Designations Do As Well

Henry David Thoreau once wrote: “Things do not change; we change.” I’m quite sure Thoreau was not writing about estate planning documents at the time, but he might as well have been. While we are constantly changing – jobs, relationships, homes, finances, family – the estate planning documents that have been sitting in a drawer or safe deposit box for years do not. This includes the beneficiary designations in those documents, which designate the people you chose to inherit your 401(k), company stock, and life insurance benefits.

If you don’t regularly review and update your beneficiary designations to account for your life’s changes and your changing desires, you could leave financial hardship behind for your loved ones when you pass away. In addition, changes in beneficiary designations generally require certain specific formalities which, if not strictly followed, could result in a failure to accomplish the desired change. Once you are gone, there is nothing that can be done to implement your intended change if it was not done properly while you were alive. Therefore, care must be taken to ensure that a desired change in beneficiaries is properly accomplished so that your expectations and desires are fulfilled.

Blended Families, Adult Children, and Beneficiary Designations

Today, many people have so-called “blended families” where one or both members of a former couple remarry others with children from previous relationships. It makes sense that each spouse would want to provide for his or her blood offspring more so than stepchildren. Because state intestacy laws pass an individual’s probate assets to blood relatives, many people turn to non-probate assets to provide for stepchildren and other non-blood relatives. Non-probate assets include property grounded in contract principles, such as life insurance, pension plans, annuities, and retirement accounts. Simply put, if you designate a named beneficiary in a contract or on a form provided for that purpose, it’s a non-probate asset. These assets pass to the named beneficiary automatically, without the need for any probate or trust proceedings.

But what happens in cases where an elderly parent’s long-term care needs drain the probate estate completely? It’s not uncommon for one or both spouses to require costly nursing home care or lengthy hospitalization. Even a single year of residential care can cost tens of thousands of dollars. In a case where biological children were named in a decedent’s will but left out of non-probate assets, an individual’s children would end up with no inheritance. This could create a potential windfall, contrary to your expectations and desires, for stepchildren designated as beneficiaries on life insurance policies and retirement accounts.

Other common issues that arise from unchanged beneficiary designations include:

  • Not adding additional children as beneficiaries when born;
  • Not removing deceased people as beneficiaries;
  • Not removing ex-spouses or former in-laws as beneficiaries;
  • Not making “special arrangements” for dependents with special needs.

Review Your Estate Plan

At Cohen Law Firm, I will review and update your existing estate plan, or create one for those who have never had one. Typically, that plan will include a will, a trust, a power of attorney, and an advance health care directive. Along with writing the documents necessary to create the plan, I will ensure that all of your assets are actually transferred into our new trust, and can assist you in changing beneficiary designations. In addition, I handle will and trust interpretation, administration, probate, dispute resolution, and litigation if necessary. I have seen first-hand the difficult consequences and conflicts among family members that can result when outdated estate plans and unchanged beneficiary designations failed to keep up with the lives, expectations, and desires of the individuals. Make sure your estate plan and your beneficiary designations keep up with your life, and that they change as you do.

This article has been prepared by Cohen Law Firm for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

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