Mon - Fri : 8:30 - 5:30
Beneficiary Designations and Estate Planning

Who inherits your Investment Accounts if you die? Who gets your IRA? If you can’t recall, it’s worth double checking to make sure your designated beneficiary is someone you actually want to receive your money. If you have either separated from a spouse, or they have passed, this is particularly important.

When correct, beneficiary designations are a simple and efficient way to bequeath your assets to another when you die. No court proceedings are required, and beneficiary accounts are not subject to probate or trust administration. Unfortunately, many forget to update their designations, and some fail to name a beneficiary at all – thinking they’ll take care of it at a later date. 

What kinds of problems can a beneficiary mistake cause for families and loved ones? Emotional stress, fighting, and attorney’s fees are the three most likely results. Let’s look at some examples. 

I currently have two probate cases where the decedents both named my clients as the beneficiary to some accounts, but failed to do so on others. This has a two-fold negative effect on the beneficiaries.

First, it increases the size of the probate estate when there is no estate plan (which is the case here). In California, estates greater than $150,000 are subject to probate – a lengthy court process in which attorneys charge fees based on the size of the estate. Without a listed beneficiary, accounts become part of the estate – meaning increased fees. 

Second, neglecting to name a beneficiary fuels or exacerbates any estate litigation because there is now more money to fight over. 

For example, in one of my cases, my client is the listed beneficiary on some of the decedent’s accounts, while he was left out on others, such as an IRA. However, he is the logical beneficiary to the entire estate, as we were able to prove that an Oral Contract to Make a Will existed. He was not, however, a blood relative. As far as everyone knew, the decedent had no family. But just as we were about to file the petition to close the estate, a long lost Chilean relative came out of the woodwork and filed a lawsuit, claiming they are the legitimate heir to the estate. While this person may have come forward even if the estate only consisted of a home, and not additional beneficiary accounts, my client is now in a position of increased vulnerability because there are additional assets at stake. 

In another probate case I have, the situation is similar. In this case, the decedent had no children but was very close to his nephew, my client. He did, however, have step children. The decedent did not have a will, but verbally told my client that he wished for him to receive his assets when he died. My job, as his attorney, is to prove that it was the true intention of the decedent to leave his assets to my client. One way to clearly show that intent would be if my client was the listed beneficiary on all of his uncle’s accounts. Unfortunately for my client, he was only listed on one account, while the beneficiaries on the other two were his deceased wife, the mother of his stepchildren. The decedent’s step children are, by law, entitled to some portion of his estate, and with the listed beneficiary as their mother, have a stronger case that they are entitled to a larger part of the state, and possibly even to act as administrator of the estate. Becoming administrator might seem appealing to them, as the estate administrator is also entitled to a fee equal to a percentage of the estate. In this instance, the decedent failed to update his beneficiary listings, and has thus opened up the door to litigation.

The bottom line is that failing to name an account beneficiary, or update account beneficiaries creates additional stress for heirs, can tear families apart from fighting over the funds, and often leads to increased legal fees. I have seen entire estates eaten up by attorneys’ fees because family members cannot agree on who is entitled to the decedent’s assets. Even when a thorough will and trust is in place, failure to update beneficiary listings costs families significantly more in attorney’s fees because the accounts must be included as part of the probate estate. 

For more information on Probates or Estate Planning, call my Walnut Creek Trust and Estate Law Firm at 925-322-1795 for a consultation.

Related Posts