Designating beneficiaries is a measure most people take to provide security for loved ones after their passing. Imagine if instead of this occurring, their hard-earned savings ended up in the hands of an estranged relative. Unfortunately, it can and has happened.
The case of The Procter & Gamble U.S. Bus. Servs. Co. v. Estate of Rolison, Civil Action 3:17-CV-00762 (M.D. Pa. Apr. 29, 2024) highlights the implications of failing to update beneficiary designations. It became a major news story following a court ruling in April 2024.
According to CNBC, the judgment indicated that Mr. Rolison’s ex-girlfriend who he had broken up with years before his death, would inherit his retirement account, valued at approximately $750,000.
You can avoid improper beneficiary choices by following these tips from a Dallas estate planning attorney. They will help you name appropriate beneficiaries to ensure the right people inherit your assets.
Understanding Beneficiary Designations
‘Beneficiary’ is a term used in estate planning. It refers to a person or entity you name to receive an asset after your passing.
A beneficiary designation is a legal instruction indicating who will receive the assets in a specific account after the owner dies. Assets that typically need beneficiary designations include:
- Life insurance
- Retirement accounts such as 401Ks and IRAs
- Annuities
- Bank accounts
- Certificates of deposit
- Investment and brokerage accounts
Beneficiary designations can help avoid the lengthy probate process and ensure assets go to their intended recipients.
Common Mistakes in Naming Beneficiaries
Naming a beneficiary might be easy for most as it usually involves assigning assets to a loved one. However, life changes can occur that may alter even a once cherished loved one’s status in your life.
A Dallas estate planning attorney can outline the implications involved if you fail to consider the potential consequences of your choice. Here are a few common estate planning mistakes when naming beneficiaries.
Disregarding Potential Issues Due to Family Dynamics
Family dynamics play a significant role when naming a beneficiary. Relationships change and once close family members can become estranged. You may have to disinherit the estranged relative or limit the assets you want to transfer to them.
If you want an estranged child to benefit from your inheritance, you can place these assets in a trust. However, you should have a will if this is not the case. In Dallas, wills are important as an estranged child can inherit a portion of your assets if you do not have one.
There are also unique challenges blended families face when naming beneficiaries, including:
- Disagreements
- Unintentional disinheritance
- Legal disputes
- Complex guardianship decisions
Consulting a Texas probate lawyer can help ensure that beneficiary choices reflect your wishes and are fair.
Naming Minors as Beneficiaries
There are risks associated with naming minors directly as beneficiaries. It can lead to unintended consequences, including misuse by the adult with legal control over the minor’s inheritance. Other risks include:
- The minor may not use the funds as intended
- Greater vulnerability to legal disputes and the minor’s creditors
- The court appointing a guardian whom you may not want to manage the funds
- The child’s other parent, with whom you may not place your trust or have a good relationship, may end up with control of the minor child’s inheritance
Although it may vary based on jurisdiction and specific circumstances, court-appointed guardianship can be expensive and time-consuming. To safeguard against these risks you should consider inheritance strategies such as creating a trust or limiting access to the funds.
Considering Individuals with Financial Issues
Naming a beneficiary with debt or financial instability might seem to be the perfect solution to help them out of their current circumstances. However, this is not always the case.
Before doing this, think carefully, as they could be prone to poor financial decisions. They may not handle the inheritance responsibly. There may also be potential creditor claims against the assets they inherit.
Designating an individual on public benefits may also hurt them. Medicaid and Social Security programs calculate benefits based on income and assets. If the inheritance exceeds the limit, they may no longer be eligible to receive these benefits.
Specific Individuals to Avoid Naming as Beneficiaries
Spouses, siblings, and children are usually common choices when naming beneficiaries. It is natural to want to take care of close relatives, even after you have passed on. However, naming specific individuals may have serious implications such as:
Ex-Spouses
After a divorce, ensure you remove your ex-spouse from beneficiary designations unless there is a specific reason to keep them. This helps prevent legal complications that are often exacerbated after an acrimonious divorce. It also ensures that your assets go to your intended heirs.
Dependents with Special Needs
Financial support could be beneficial to someone with special needs or lifelong dependence. However, directly naming them as a beneficiary could jeopardize their government benefits. You can still provide funding for them by setting up a special needs trust.
Unreliable or Estranged Relationships
Avoid naming estranged or unreliable family members as they may cause disputes or misuse the assets. Their involvement could create emotional turmoil disrupting your family during a difficult time.
Strategies for Effective Beneficiary Designation
When considering who to name as a beneficiary in your estate plan, it’s essential to approach the decision carefully to avoid potential legal disputes and unintended consequences. Here are some strategies for effective beneficiary designation:
Regularly Reviewing and Updating Beneficiary Designations
You should regularly review and update your beneficiary designations. This is crucial, especially after significant life events such as:
- Marriage
- Divorce
- The birth of a child
Outdated designations can lead to the distribution of assets contrary to your wishes.
Consulting a Dallas Estate Planning Attorney
Estate planning can have many complexities, especially when naming beneficiaries. Seek advice from an experienced estate planning attorney in Dallas.
They can provide tailored guidance and ensure your wishes are legally documented and enforceable. They will also ensure your beneficiary choices align with your estate planning goals.
Using Beneficiary Designation Strategies for More Effective Estate Planning
Estate planning can provide financial security and peace of mind for your loved ones long after you are gone. Effective beneficiary designation strategies and carefully considering your options can help achieve this. Consulting a Dallas estate planning attorney can help honor your wishes and avoid conflicts.
The Law Office of Christopher L. Smith can provide estate planning advice and strategies. With over 30 years of legal experience, the firm offers a personalized approach to guide clients through every step of the legal process.
They can do the same for you. Schedule a consultation to secure the future of your loved ones.
