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Beneficiary Designations

7/13/2015

 
One of the most overlooked parts of the estate planning process is ensuring that accounts or insurance policies have the proper beneficiary designations.  A beneficiary designation means that after one’s death, money in an account or from an insurance policy will be distributed directly to someone (the “beneficiary”) listed on the account.        

Checking beneficiary designations is important because the money from that account or insurance policy will go directly to that beneficiary (outside of the probate process regardless of what a validly executed Last Will and Testament states). 

There are a few common examples that show how beneficiary designations can drastically change one’s estate plan.

Example 1: Predeceased child

Al was married to Kathy, but Kathy passed away before Al.  They had two children during their marriage, Bob and Bill.  Bob and Bill each get married and they have one child each.  Bob passes away before Al, surviving are his spouse and child.  Then Al dies. 

After Kathy’s death, Al obtained a life insurance policy for $250,000.  The beneficiary designation on his policy is: “To my children”. 

Although it was probably Al’s intent that should either of his two children pass away before him, that the proceeds be split equally between his surviving son and his deceased son’s child, the likely outcome will be that Bill receives the total $250,000 to the exclusion of Bob’s child. 

The beneficiary designation only read “To my children” and many life insurance companies will interpret this phrase to mean to the children only if they are living.  If one child has died, then the surviving child will receive the proceeds.

This unintended result could have been avoided if the beneficiary designation was properly drafted.  Please be aware that most life insurance companies have different rules for how to word the designation.  Thus, it is important to contact the company on a case-by-case basis to determine the proper wording in your case.

Example 2: Ex-spouse windfall

John and Mary are married.  They had three children during their marriage.  John and Mary later get a divorce.  During the marriage, Mary obtained a life insurance policy.  When she purchased the life insurance, she named John as the primary beneficiary. After the divorce, Mary had her Last Will and Testament changed to leave everything to her children and specifically excluded John from receiving anything from her estate.  Mary then dies, surviving are John and the three children. 

Although Mary’s Last Will and Testament excluded John, he was still the primary beneficiary under the insurance policy.  Therefore, John will receive the life insurance benefits if he applies to receive it. 

This counterintuitive result can be understood due to the fact that a life insurance policy is a mere contract between the insurance company and the insured.  According to the contract, John was the beneficiary and the insurance company is bound to make the benefit check payable to him. 

This same example can relate beyond the common ex-spouse example to other situations as well: jointly owned real estate, living trusts, testamentary trusts, estate tax planning, payable on death, transfer on death, etc.

The prudent way to cure these unintentional results is to check the beneficiary designations on your accounts and insurance policies.  Checking beneficiary designations is an ongoing process.  When a new account is opened or a new insurance policy is purchased, it is recommended that you contact your attorney at JBN to discuss how to best title the account and list the beneficiary designations.

Author: Brian F. Johnson (bjohnson@peorialawyers.com)

Nothing in this article should be relied upon as legal advice.  Please consult an attorney for advice tailored to your specific factual situation.

Estate Planning for Young Families

7/13/2015

 
The last thing families with young children want to think about is estate planning.  However, if there were ever a time that estate planning was important, it is right after a family has their first child. 

For example, let’s assume Jon and Jane have their first child, Junior.  Before Junior was born, if Jon or Jane died without a will, a document that controls property after a person passes away, the surviving spouse would get all the property.  This is the expected and probably favorable result.  However, after Junior was born, if one of the spouses passed away without a will, the deceased spouse’s solely-owned property would generally be split between the surviving spouse and the surviving child.  Thus, without a will, Jane and Junior, a newborn, would share the property equally.  Initially this doesn’t seem to be a problem.  However, for instance, if Jane wants to sell the home which had been in Jon’s name, a guardian would need to be appointed for Junior.  This process could end up potentially costing thousands of dollars.

Most importantly, young parents should be aware of the guardian-nominating provision.  If both parents were to unexpectedly pass away, the guardian nominated will be given preference over other people.  Thus, the time and cost it takes to get a guardian appointed would be shortened and lessened.  

Proper estate planning includes not only a will, but also powers of attorney and living wills.

A power of attorney is a document that appoints another person (called the “agent”) to make decisions for an individual (called the “principal”).  A living will gives general directions to treating physicians with respect to death delaying treatment.   Most think that powers of attorney and living wills are only needed by the elderly.  However, there are countless situations where if young families had a power of attorney, their situation would have been easier.  For example, one need not look much past the Terri Schiavo situation several months ago to see how a power of attorney or living will would have made her situation easier.  When a spouse acts as the agent, the entire process is simplified in that the well spouse need not be appointed guardian.

In Illinois, there are two types of powers of attorney—property and health care.  The definitions are obvious, one gives an agent the power to make decisions for the principal regarding property and finances.  The other gives an agent the power to make health care decisions. 

Careful attention and consideration should be paid when determining who the agent should be.  Of course, many young families choose their spouse.  However, as time goes on, the documents can always be redrafted to appoint a child. 

Estate planning is sometimes called “preventative planning.”  Getting everything in order now can spare thousands of dollars in court costs and attorneys’ fees.   

Author: Brian F. Johnson (bjohnson@peorialawyers.com)

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