The Important of Beneficiary Designations – The case of Life Insurance paying to an Ex-Spouse

A recent California Case highlights the importance of making sure you review your estate plan and beneficiary designations every couple of years. The beneficiary listed on retirement plans and Life Insurance policies supersede anything your write in your Will or Trust.

This was reinforced in a recent case where an Ex-Spouse received the life insurance proceeds of her former spouse after his death because he never took her name off of the policy, even though he wrote in his Will that he didn’t want anything to pass to her.

Be sure to check your beneficiary designations to ensure they are up-to-date with your current intent.

Here are the facts to the case mentioned above:

Estate of Post

Decedent Jerome Norman Post purchased a life insurance policy during his lifetime and named his then-spouse, Angela Post, as the primary beneficiary, and his sons from a prior marriage, Kenneth Post and Eric Post, as the contingent beneficiaries. Decedent was divorced at the time of his death, but he had not changed the beneficiary designation on his life insurance policy to remove his former spouse as the primary beneficiary. He had executed a codicil to his will shortly before his death expressing his strong desire that his former spouse receive nothing from him after his death, including by beneficiary designation. Decedent’s sons sought an Order designating them as the rightful beneficiaries of the decedent’s life insurance policy under Probate Code Sections 5040 and 9611. The appeals court found in favor of the former spouse and she was entitled to receive the life insurance proceeds.

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Did You Choose the Right Trustee?

Choosing just the right trustee is a highly important decision, and in many cases more imperative than that of the proper executor of your estate. They will have discretionary authority over an entity that can last for multiple generations and will have the responsibility of decision making and asset investing for your trust.

  • Trustee Qualifications
    • A trustee should have sound professional financial judgment, and be reliable and trustworthy. They will be in charge of every financial and tax related responsibility of the trust including collecting trust assets, paying bills, filing trust tax returns and accounting as well as distributions to the beneficiaries, balancing the competing interests of income beneficiaries and remaindermen, considering whether to make loans of, or pledge, trust assets, and monitoring the investment performance of the trust.
  • Should You Select a Family Member?
    • Family members may have a stake in the success of the trust, prompting a heightened level of care and concern. However, if the family member chose to be trustee is also a beneficiary of the trust, their authority over trust distributions will be limited. If you would prefer that a trustee have broad discretionary power over trust distributions, you will need to name at least one trustee with no beneficial interest in the trust.
  • Should You Select an Unrelated Party?
    • An unrelated party, such as a close family friend, professional advisor or bank is another option. You may be hesitant to name a family friend as a trustee as they will then be granted intimate knowledge of your family’s finances. If you are creating a long-term “dynasty trust,” you may want to consider naming a bank or trust company as trustee, since the trust will last beyond the lifetimes of any individuals you may know.
  • Revisiting Your Choice of Trustee?
    • One’s circumstances and relationships often change through the years, and you will want to make sure that the person or institution you selected a few years ago is still the right choice.

See Cheryl E. Hader, Monika Jain, & Avigail Goldglancz, Did You Choose the Right Trustee?, KramerLevin.com, July 16, 2018.

7 Common Estate Planning Disasters and How to Avoid Them

Baby boomers are now aging in a tax era that is favorable to transferring wealth to loved ones of younger generations. The recent increase in the estate and gift tax exemptions thresholds, along with expanding wealth, work to create an atmosphere conducive to transferring extensive assets after death. But many people believe that because of this amicable atmosphere, the process of passing along their estate is now so simple that they are able to take care of their estate planning on their own. However, due to longer lifespans, higher incidences of multiple marriages, and blended families, the process of creating an estate plan that satisfies all of your needs may be more complicated than originally thought.

See Michael Feinfeld, 7 Common Estate Planning Disasters and How to Avoid Them, Market Watch, April 26. 2018.

Out of State Representative for a California Probate

In most cases, it is perfectly fine to have an out-of-state family member or other individual act as the personal representative (executor/administrator).

If you have questions regarding your status as a personal representative residing outside California, I encourage you to contact me. We are experienced in working with a personal representative who lives out-of-state and can make the process extremely efficient for you. Call us now for a no charge consultation: (858) 485-1990.

Why Do I Need Will if I already have a Trust?

A revocable living trust can only control the assets that have been transferred into it. This process of changing titles and beneficiary designations to your trust is called “funding your trust.” It is a simple concept, yet it is what keeps you and your family out of Probate in the event of your death; it also allows you to keep more control over the distribution of your assets to your beneficiaries.

While you may intend to put everything into your trust, you may inadvertently leave something out of it. For example, you could acquire new assets after creating the trust and simply not get around to titling the assets in the name of your trust. Your pour over will states that if a “forgotten” asset is discovered after you die, the asset is to go into your trust. It may have to go through Probate first, but at least your pour over will catches the asset and sends it back (pours it over) into your living trust so it can be distributed as part of your overall estate plan.

Remember, a pour over will is simply a safety net. It is not a substitute for changing titles and beneficiary designations while you are alive. If your intention is to avoid probate (which is probably a big reason why you set up a living trust in the first place), you must fund your trust.

If you are unsure whether your Trust is properly funded, please contact us today.

Funding Your Family Trust

What it Means to “Fund” a Revocable Trust

After an individual (the “grantor” also known as the “settlor” or “trustor”) creates a revocable family trust, the next step is to implement the trust by “funding” it. “Funding” the revocable trust simply means transferring ownership of assets owned by the grantor as an individual to the trustee of the revocable trust.

Why a Revocable Trust Should Be Funded

In most instances, a grantor should transfer all assets in his or her own name to the trust to take advantage of the benefits of a revocable trust. Important benefits of a revocable trust include:

  • Ease of management of assets during disability.
  • Probate of Avoidance.
  • Flexibility in disposing of non-probate assets.

Many clients believe that if they simply set up a revocable trust, all of the above benefits will follow automatically. Clients often forget, however, that only what is held in the name of the revocable trust avoids probate and ancillary probate at death and formal conservatorship in the event of disability. In addition, naming a revocable trust as the beneficiary of certain non-probate assets (such as life insurance proceeds, annuities, and death benefits) will ensure that these assets pass at death in accordance with the terms of a revocable trust.

Typically, the full benefit of a revocable trust will be realized only if most of the assets have been transferred into a revocable trust during the grantor’s lifetime.

USA Today Article: How to prepare financially for being a widow/widower

Married couples face many challenges in retirement. One that is unavoidable and that consistently derails retirement plans is the loss of a spouse. Studies show that the death of a spouse often leads to an economic decline for the surviving spoues. This may stem from a loss of income, an inability to cope with the loss, or the inability of the surviving spouse to competently manage their finances. A few steps couples can take to mitigate this risk include: 1) having an open discussion about money matters, 2) cover what-if scenarios, 3) delay social security as long as is feasible, 4) check and recheck beneficiary designations, 5) gather a financial team, 6) make sure the estate plan is current, and 7) possibly relocate to a smaller home that requires less maintenance and has lowers associated costs.

See Robert Powell, How to Prepare Financially for Being a Widow/Widower, USA Today, January 19, 2018.

Seminar: WHAT’S NEW IN ESTATE PLANNING 2018

Dear Clients, Friends and Colleagues:

We are pleased to invite you and your guests to our 2018 Annual Estate Planning Seminar. If your clients, advisors, successor trustees or children would like to attend, please let us know.

The seminar will be at no charge. We will provide you with seminar materials and refreshments. We will make sure there is plenty of time for questions.

Email your reservation to lorilipkes@trustlaw.us or give our office a call to let us know which seminar you prefer to attend and the number of guests.

We look forward to seeing you.

Roberta J. Robinson & Daniel J. Wilson