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Check Those Beneficiary Designations!

It happens all the time. John Doe passes away and a member of the family contacts my office because they’re expecting a check from a life insurance policy or a retirement plan. Unfortunately, when the check arrives, it’s made payable to “The Estate of John Doe” rather than to an individual person.

Why? Most often it’s because our hypothetical Mr. Doe never designated a beneficiary for the policy. Or, perhaps he designated a beneficiary years ago and that person died and Mr. Doe never thought to update the designation.

Either way, the problem for the family remains. No bank will cash the check and the family can’t access the funds without taking the asset through the probate process.

What is probate? You can read more about it on my website. In short, Probate is a court supervised process where the assets of that person’s estate are gathered, debts are assessed, and ultimately legal title of the assets of the estate pass to the proper parties as either determined by law or their estate plan.

Items passed through beneficiary designations typically pass outside the probate process and can generally be quickly distributed to a named beneficiary. If Mr. Doe had a proper beneficiary named on the asset, that person or persons would have received a check fairly quickly. Now, the asset must be taken through probate which will be an expensive and time-consuming process, may subject the asset to the claims of creditors, and could have adverse tax consequences.

Passing assets, when allowable, through beneficiary designations can be a wonderful estate planning tool. But there can be disadvantages depending on your circumstances that should be considered. During an estate planning consultation with my clients, we review their assets as well as beneficiary designations and determine if it is appropriate for an asset to be passed through beneficiary designations or through other means, such as a trust or other estate planning tool.

Have you checked your beneficiary designations on your life insurance and retirement policies lately? If it has been a while, or if you’ve had a major life event such as marriage, divorce, birth or death in the family it’s probably time to take a closer look. If you’d like to sit down and review your beneficiary designations as part of a comprehensive estate plan, contact my office and I’m happy to help you get started.

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