I had a phone conversation this past week that was a stark reminder of the important role beneficiary designations play in your estate plan and it reminded me of this previous blog post on the topic. Unfortunately, the person I spoke with this week had a sad story about how beneficiary designations can cause serious family problems.
The short version is this: his father had been married twice, so he had “blood” children and step-children. Not an uncommon family situation. Dad named his step-son as the sole beneficiary on one of his retirement accounts (although modest in size, it was still tens of thousands of dollars). The idea was that the step-son would not benefit from the rest of dad’s estate because he received the retirement account. Well, fast forward to a few months ago when dad passed away. Due to end of life care, etc., dad had used up most of the rest of his estate. But guess what he didn’t do? You’re right – he didn’t change the beneficiary designation on his retirement account. So, step-son ended up with all of the retirement account assets, which was the bulk of dad’s overall estate.
So, did he do the “right” thing and share it? Nope. And that’s the critical thing to remember about beneficiary designated assets (typically retirement accounts and life insurance) – it will be paid to the beneficiary and, once paid, it is solely the beneficiary’s. The beneficiary is not required to share it or do anything specific with it.
As you can imagine, this has caused some serious hurt among family members, to the point that several of them are not talking to each other any more. Do you think that is what dad wanted? I very highly doubt it. But, if you don’t keep your plan updated, these types of stories are far more likely for you, just like they were for this family. That’s why we include ongoing 3-year reviews (without charge) for all of our estate planning clients. Life changes, and sometimes quickly. What you have will change, the laws will change, and likely what you want to have happen will change. If your plan doesn’t change along with it, it is more likely to fail.
Michael Lichterman is an estate planning and charitable planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™. This goes beyond merely planning for “stuff” – it’s about who your are and what’s important to you. He focuses on estate, charitable, and asset protection planning for all generations (“young” and “experienced”), the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses, and pet planning. He enjoys creating life long relationships with his clients centered on their family’s values, insights, stories and experiences.