Who inherits $100k, Margie or Suzie Que?
Beneficiary designations. Beneficiaries are those you designate to receive the proceeds of various financial accounts at your death. You can name beneficiaries of your life insurance policies, IRA’s 401(k)’s, checking, savings, brokerage or other accounts. When you die the institution will pay the person(s) that you have designated to receive the assets
A Good Life, A Forgotten Love
Our fictional hero Frank had been married to the love of his life, our fictional hero, Margie, for 48 years. Frank & Margie had 3 children that they loved very much. They had a good life.
Recently, Frank died with a will, wherein he left all of his assets to his wife Margie, or if she predeceased him (she obviously didn’t) equally to his children.
The only wrinkle in the puzzle is that Margie is Frank’s second wife. Many years ago when he was a young man, Frank was married to wife #1, Suzie Que. Frank and Suzie Que never had children and were only married for a couple of years. It was never meant to be. They were young and just weren’t cut out of each other.
However, during this short marriage, Frank had the opportunity to purchase a $100,000 life insurance policy, so he did so. He was young and the policy was dirt cheap, so he bought it and named Suzie Que as his beneficiary. After the divorce from Suzie Que, Frank’s situation in life improved significantly. He met Margie and started his new life. Any thoughts of the life insurance policy or Suzie Que were long gone. Like many others, Frank made assumptions without giving a second thought to legal beneficiary designations.
Who Gets the Money?
Now that Frank has passed, who gets the money from the life insurance policy – Margie (the love of his life) OR Suzie Que (the fling from his youth)?
Sadly, the answer is most likely, Suzie Que will be $100K richer.
Yes, Frank had a will. But a will only passes probate assets, which are assets titled in his name. Anything with a beneficiary designation passes automatically to the named beneficiary and passes outside of probate. Even if Frank had a trust, the beneficiary designation would likely control who gets the money.
To reiterate, beneficiaries are those you designate to receive the proceeds of various financial accounts at your death. You can name beneficiaries of your life insurance policies, IRA’s 401(k)’s, checking, savings, brokerage or other accounts. When you die the institution will pay the person(s) that you have designated to receive the assets.
Reason for Using
One big reason for using beneficiary designations is to Avoid Probate. For those who have been through the probate process, you know from firsthand experience that this is not something that you would wish on anyone – especially those you love! By naming certain beneficiaries on your accounts, the money in that account will be paid directly to your named beneficiary at death.
Danger of Not Using
Let’s say the account is just in your name and you die. Before your death, you could have moved the account or withdrawn money from this account. If the account was only in your name, you were the only person who could initiate transactions against that account. But now that you are deceased, who can withdraw money from that account? That’s right – no one!
For your spouse or kids to be able to withdraw money from the account, they may have to probate your will or if you died without a will, start an intestate probate proceeding. This means that your money in the account may or may not go to the people you would have wished.
How can you avoid all of these unpleasant surprises? Simple – just have your preferred individuals listed as named beneficiaries on the account.
But what’s the catch?
The catch is illustrated in the Frank and Suzie Que story. It’s really important to check to see who your named beneficiaries are on all of your assets. I can’t tell you how often clients have been shocked when they checked!
Many people just assume that everything is just as they imagine it to be. The lesson here is to not assume! Instead check to verify the named beneficiaries on your life insurance policies, bank accounts, brokerage accounts, IRA’s 401(k)’s or any account where you may have a beneficiary designation. To not do so may set you up for an unpleasant surprise!
Best wishes to you and your family as you check your beneficiary designations. It’s especially a good idea to do this every few years when you do a review of your estate plan – but don’t wait! This is important enough to do today!
Best wishes to you and your family as you work to do the necessary planning for your family.
FREE Phone Consultation
We work with people to do various types of estate planning. There is no one size fits all plan and no plan is categorically better than others. The key is to meet with your attorney (hopefully us!) to discuss your unique situation and have a plan crafted that is best for you. If you or your declining parent is not 100% sure of their beneficiary designations, please be proactive and give us a call before you (or they) lose capacity.
Without a properly flexible plan, how will you care for your declining Loved One, be there for your family, get work done, and pivot in the event of a crisis? What about cost? How will you pay for it all? If you make the Assisted Living Facility choice, how long will the money last? Together, we can craft a proactive plan! Lets get started protecting your assets!
We are currently offering a FREE 10-Minute Phone Consultation with one of our Elder Law professionals. You can get a jump start on planning as we work together so you don’t need to attempt DIY Estate Planning.
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We have covered some legal topics in this edition and as always, I want to emphasize that (1) the law is different in every state, so if you live in a state other than Arkansas, just know that the law may be totally different in your state; (2) your situation is unique, so one size doesn’t fit all – meaning what we discuss herein may not be right for you; (3) we have purposely over-simplified many of the topics above (otherwise this would be many pages long and unreadable because of all of the legalize). It is imperative that you meet with your attorney (hopefully us!) and get a plan that will work for you. Please don’t attempt DIY Estate Planning based on what you read in this (or any) article AND don’t try to go it alone. Please consider this, get your questions answered and take action.