Tuesday, February 5, 2013

Caution: Don't Nullify an Estate Plan by Doing a Beneficiary Form

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Would you take tax advice from your dentist?  How about allow your allergist to perform your c-section?  My guess is no.  Then why take estate planning advice from anyone other than an attorney who focuses on estate planning?  Doing so can come at great risk.

The following seems to happen far too often.  Client works with an attorney to create a will and other estate planning documents.  The papers make sure that specific desires are met.  For example, creating a trust for minor children, a special needs trust, or including a partner that is not legally recognized.  All is signed, dated, and complete.

And then the client goes to see his or her banker, financial planner or insurance agent.  Giving them the benefit of the doubt, they are likely attempting to help this client.  But in the end they give legal advice, and that advice is usually inconsistent with the estate plan.  In the end the client will complete beneficiary forms that run contrary to the terms of a will.  And in America, a beneficiary designation trumps the bequest in a will.  In the end the client's wishes go unfulfilled.  Imagine the following:

  • In a second marriage the client designates a brokerage account to her children from her first marriage, however, her broker has her fill out a TOD card naming her second husband, stating "it will cut down on probate costs".  True, but now her second husband inherits, not her kids, and he can do as he pleases with those funds; or
  • A will creates a trust for minor children, to be managed and held until the youngest is 35.  When completing the beneficiary form for life insurance, the second beneficiary listed are the children, not the trust.  If the parents dies, the money will pass to the children, and not have the protection and control of the trust.

Yes, lawyers cost money.  They use lots of legal terminology.  But they should have the big picture in mind.  When I work with clients I provided a letter of instruction on how beneficiary forms should be completed to work with the estate plan, not against it.  Still, when a client walks out of my door I cannot monitor every paper they fill out for insurance, retirement, etc.

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