We advise our clients to periodically review all accounts with beneficiary designations such as life insurance, retirement plans, annuities and the like. Part of comprehensive estate planning includes looking at these types of presumably non-probate assets to ensure the beneficiary designations match up with the client’s overall goals.
The issue that often arises is that someone has named their ‘estate’ as the beneficiary on these policies or accounts. Leaving this asset to your estate converts it into probate property and opens it up to creditors. It also allows any remaining amounts to be distributed according to the terms of the will or trust. This may not accomplish the goals the clients had in mind – especially those who purchased the life insurance to protect a spouse.
Here are a few other beneficiary designation traps to avoid:
- Failing to list a contingent beneficiary. If you simply list a spouse as the beneficiary and the two of you die simultaneously, that will also require the asset to enter into probate.
- Naming a minor as a beneficiary. Minors are not allowed to inherit assets in their names. Without language to establish a trust, the court will be required to appoint a guardian to manage the assets until the minor reaches majority.
- Outdated beneficiaries. This is the reason we encourage periodic reviews of beneficiary designations because a deceased beneficiary or an ex-spouse can wreak havoc on an estate plan.
For comprehensive estate planning services in the Greater Baltimore area, please contact Stouffer Legal at 443-470-3599.