Scott & Huff, P.C.

1000 S. Garfield Ave.
Suite 3
Traverse City, MI 49686
(231) 933-5322

Beneficiary Designation-The Forgotten Puzzle Piece of Estate Planning

By: Diane Kuhn Huff

Congratulations!  You have now completed your estate plan. You agonized over decisions, but in the end you provide comfort for your spouse, a plan for your children, pets and charities.  You are now ready to go off into the sunset and live the good life, free from worry over your affairs.  Or are you?  Did you and your attorney review your beneficiary designations to assure they are consistent with your estate plan?

Assets such as life insurance, annuity contracts and retirement accounts have beneficiary designations that assign the proceeds upon your death.  Generally, the assets pass directly to the beneficiaries outside of probate, outside the directives of your Will and outside the directives of your Trust.  These beneficiary designations need review to assure that they are consistent with your estate plan. 

Here are issues to address to assure that your beneficiary designations are correct:

1.      For retirement accounts, do you want to take advantage of the spousal rollover.  The spousal rollover gives the spouse maximum flexibility in payout options.  The spouse can also name new beneficiaries of the account.

2.      If any named beneficiary is a minor, a conservator will need to be appointed in order for the minor to receive the funds.  The minor will have full control of the funds at age 18.  Naming an account under the Uniform Transfer to Minors Act, or a trust for the benefit of the minor avoids a Conservatorship and prevents the minor from gaining full access to the funds until he or she is more mature.

3.      If a divorce decree removes a beneficiary from an account, but the beneficiary designation form still names the former spouse, the former spouse may inherit the account.  According to the U.S. Supreme Court, the beneficiary designation controls even if it is contrary to State law or the divorce judgment.  Michigan allows the estate to sue the former spouse, but who wants that hassle.

4.  4.     Naming a trust as the beneficiary of any tax deferred account has income tax and distribution consequences.  You should be aware of those consequences to assure that naming the trust as beneficiary is the best option for you.

5.      What does the form provide if the beneficiary predeceases you?  Some forms have you check a box stating either that the deceased beneficiary's share goes to his or her issue or to the remaining named beneficiaries.   

6.      Are you part of a blended family?  If your spouse is the named beneficiary, your children may not inherit anything from you.

7.      If the property does directly to the beneficiary, there may be insufficient assets to fund the trusts for your spouse or children.

So the moral of the story:  Always review the beneficiary designations for non-probate assets with your estate planning attorney and make sure that the documents state exactly what you intend.  When there are changes in your circumstances, make the appropriate changes on those beneficiary designations immediately.

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