Updating estate plans and reviewing beneficiary designations are more important than you may realize.
They’re easy to do while you are alive, but a tad more difficult once you’ve gone to the great beyond.
Last Wills and beneficiary designations need to be reviewed and revised to ensure that they reflect the wishes of the parent as time goes by. Let’s see why …
Case Study: A Tale of Three Siblings
The father of three children had an estate plan done when his adult children were in their twenties. His Last Will and Testament directed all assets in a substantial brokerage account to be equally divided between the three children (his daughter and his two sons).
After writing his will, the father met with his investment advisor and signed a beneficiary designation leaving the brokerage account—including the substantial growth occurring over the years—to his daughter.
His Last Will was never updated.
Fast forward 30 years.
Brothers Vs. Sister: Who Wins?
When the father dies, his two sons are successful, affluent physicians with high incomes.
His daughter is a retired educator who had raised two children as a single mom and struggled financially for many years.
The two well-off sons claim their father’s Last Will (which divides all assets equally) must be the final word. They insist the brokerage account is to be divided equally among the three adult children.
But they’re wrong, and here’s why …
Probate Assets & Non-Probate Assets
Any assets held in an account with a beneficiary designation are considered non-probate assets. They do not pass through the probate process. Their disposition is not controlled by the Last Will. The contract between the institution and the individual is paramount.
Insurance policies, retirement accounts, bank and brokerage accounts usually have these designations. They often include a pay-on-death provision, and the person who is to receive the assets upon death of the owner is clearly named.
If the owner of the account fails to sign a right of survivorship, pay-on-death or to name a beneficiary designation before they die, then the assets are paid by the financial institution to the probate estate. This should be avoided—it complicates what could be a simple transaction.
The two sons were correctly advised by an estate planning attorney of their sister’s full and protected right to receive the investment account, despite their wishes. When the provisions in the Last Will conflict with a contract made between an owner and a financial institution, the contract prevails.
In this case, a less financially secure daughter and her family benefited from the wishes and foresight of her father.
Last Wills and beneficiary designations need to be reviewed and revised to ensure that they reflect the wishes of the parent as time goes by.
