Beneficiary designations are an essential component of every estate plan; however, these designations are often overlooked.

As a bit of background, there is a distinction between probate assets and non-probate assets.  Probate assets are distributed according to your will during a probate administration whereas non-probate assets are distributed outside of the probate process and are, instead, distributed according to a beneficiary designation form.  Common non-probate assets include life insurance, retirement accounts (e.g., IRA, 401k) and accounts or real property titled as “joint tenants with right of survivorship” or “transfer on death”.  These assets pass to the named beneficiary without any consideration for the heirs named under the decedent’s will.  If not updated properly, this can lead to a scenario in which assets pass to an unintended beneficiary.

Beneficiary designation forms should be updated at the same time that you update your estate planning documents in order to ensure that your named beneficiaries reflect the desired disposition of your assets.  They should also be updated whenever there is a major event in your life, including marriage, divorce, birth of a child, and the death of a spouse/child.

One recent case demonstrates the importance of making sure that your beneficiary designation forms are up to date.  In Procter & Gamble v. Estate of Jeffrey Rolison, the account holder passed away in 2015 without a will.  When his family started the probate process, they discovered he had a retirement account that is now worth approximately $1 million.  Next, they discovered the sole beneficiary he listed on the beneficiary designation form in 1987 was his ex-girlfriend from the 1980s.  Litigation ensued and, as of now, the courts upheld the beneficiary designation and ordered that the $1 million retirement account be transferred to the ex-girlfriend from 35 years prior.  If the decedent had, at a minimum, just removed the ex-girlfriend from the beneficiary designation form and not named any other beneficiary, the funds (pursuant to the terms of the retirement account) would have gone into his estate. From there, the retirement account would have been distributed to his family pursuant to state law and the ex-girlfriend would have inherited nothing.  However, due to that beneficiary designation form, it made the retirement account a non-probate asset, which bypassed the state law that governs when there is not a will and even would have bypassed the will if there was one.

The takeaway from that case is to make sure you revisit beneficiary designations when updating your estate plan so that your assets are distributed according to your wishes.

The Estate Planning Attorneys at Lasher Holzapfel Sperry & Ebberson PLLC are available to meet with you to discuss your current estate plan and beneficiary designations and draft an estate plan that best matches your goals.