Have You Checked Your Beneficiaries Lately?

Many people assume that their will and revocable trust say where all of their assets will pass after they are deceased. What is not generally understood is that certain types of assets are not governed by the terms of the will or the trust. These assets include jointly owned property, which passes to the surviving joint owner when the first joint owner dies, and life insurance and retirement plans, which pass to the named beneficiary when the owner dies. Signing the will or trust is not necessarily the end of the process of establishing an estate plan. It is important to check the assets carefully to be sure that none of these "will overrides" applies, and to make corrections if needed.

A relatively recent Massachusetts case drives this point home. A couple had divorced and the husband had redone his will to take out his ex wife - but he failed to change the beneficiary designation on his $100,000 life insurance policy. When he died, his ex-wife was still named as the beneficiary. His mother was the alternate beneficiary of the policy. The case went to court and the court decided that the divorce revoked the provision for the ex-wife and that the insurance benefits should be paid to the deceased’s mother.

The lawyer for the deceased husband argued that the husband was unaware he needed to change the beneficiary designation after his divorce and intended his mother to receive the life insurance. The court agreed with this argument.

The lawyer for the ex-wife argued that the terms of the the beneficiary designation should apply because the deceased and his wife had an agreement that she would stay on the policy as the beneficiary – in other words that this was part of the negotiated divorce settlement.

You can see how this case could have gone either way - both arguments have some degree of merit. But the lawyer's fees, time lost and stress for the families could have been avoided had the husband taken a few minutes to fill out a form and take his ex wife off the beneficiary designation.

When we do an estate plan we start by drafting an asset inventory listing every asset, its owner(s), and the beneficiaries currently named for assets that have a beneficiary designation. After the wills and trusts are signed, we turn that asset inventory into a checklist with a "To Do" item noted for anything that needs to be changed, including beneficiary designations. Then we have a session to decide who will do each of the To Dos and coordinate getting them done,