Have Your Beneficiaries Been Updated Lately?
You may have heard the horror stories of officers who divorced and never changed their insurance policies, deferred comp beneficiaries, or estate plan, and the ex-spouse got it all. It is easy when hearing dramatic stories to assume you are safe. But are you?
There are various reasons why your listed beneficiaries might not fit your current intentions. It can also prove costly because of circumstances beyond your control.
It is very common to have beneficiary names listed on policies and accounts that are not current to your wishes. The chances are you have beneficiaries listed right now that include a person you no longer wish to receive the benefit or it excludes someone.
Here are some examples:
- Previous marriages: That is an easy one. However, please know that when you die the beneficiary on any legal document will receive the proceeds of that policy, account, or estate plan. I have had those phone calls from surviving spouses who discovered the ex on policies after their spouse died.
- Not listing all your children: You took out the insurance policy years ago before having that second or third child.
- Intentionally listing only one child: You figure that child will take care of their siblings. That mistake is widespread. However, the child you list has legal ownership. What if the child's spouse has different ideas? Or before making distributions to siblings, the beneficiary child dies. All the funds are now part of that child's estate. The funds could end up in the beneficiary child's divorce, lawsuit or creditors claim. Then there are possible gift taxes when making distributions depending on the tax code at the time.
- Countless clients were in one of those or other situations as we reviewed their assets and policies during their Living Trust signing. Fortunately, they were still around to fix it.
Minor Children Beneficiaries
Suppose you have listed a minor as a primary or successor beneficiary on a policy or account. Unfortunately, you die before the minor reaches 18 years of age. If so:
- If you die before the minor reaches age 18, all of the proceeds will go to Probate. The assets stay under the court's control until the minor is 18.
- Secondly, not many people want their children to receive large sums of money at 18; when Probate will release it all. 18 may be the age of majority; however it is rarely the age of maturity.
One of my favorite truths is that the human brain does not fully form until age 25. Everything is there except the frontal cortex, which governs reason. And that explains a lot! That fact should also inform your decision about the final distribution age of all funds. A Living Trust best accomplishes a sensible distribution strategy.
A Trust protects the funds outside of Probate. The minor can receive distributions before age 18 for health, education, and welfare at the discretion of your chosen Trustee. You chose the final distribution age.
Beneficiary Financial Troubles
No matter what age you feel is appropriate for your beneficiaries to receive their inheritance, there is no way of knowing whether they are going through a divorce, bankruptcy, or lawsuit at the time of your death.
If you name your Living Trust as beneficiary, the Trust protects against all of those risks. A Trust's Spendthrift Provision prevents any creditor or spouse from claiming the gift of your estate.
Benficiary Disability Issues
Suppose one of your beneficiaries acquires a disability through accident or illness before your death. In that case, your estate funds will go to the government for reimbursement of public benefits. Or your beneficiary will lose their SSI or Medicaid benefits.
You can prevent this from happening with a Living Trust that has precautionary Supplemental Needs provisions.
At the end of your life, or at incapacitation if you have property or bank accounts in your name, they risk Probate.
- A Will must be Probated. The rule is no one can legally sign your name. Therefore, all assets in your name are subject to the probate process, which averages 18 months and is costly.
- A Living Trust completely avoids Probate.
- Your financial accounts, life insurance policies, and deferred compensation accounts can name your Living Trust as beneficiary, subject to essential tax considerations.
- A Living Trust estate plan includes both Health Care and Financial Power of Attorney documents. It also consists of a Last Will and Testament. A Will is necessary for guardianship of minor children. It also transfers assets in your name out of Probate.
17W220 22nd Street, Oakbrook Terrace, Illinois, 60181
This blog entry is created for information purposes. Therefore, it is not legal advice. Please do not use this blog as legal advice, which turns on specific facts, as well as laws in specific jurisdictions. No reader of this blog should act or refrain from acting based on any information included in or accessible through this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country or other appropriate licensing jurisdiction.
Do You Have Umbrella Insurance?
Umbrella Insurance, the Most Important and Least Expensive Liability Insurance
The chances are you have the average vehicle policy coverage limits of liability - $100,000/$300,000.
Those figures represent the limits of your insurance protection for damages as a result of injuries you cause to others in an accident. However, if the damages exceed $100,000 per person or $300,000 per accident for all persons injured in the accident, you must pay the excess.
Umbrella Insurance Coverage
A standard umbrella policy covers all vehicles on your policy and your home for injuries caused to guests or visitors on your property. An umbrella policy also may cover libel or slander claims. For instance, posting a bad review or social media comment. You may also have coverage for malicious prosecution claims and overseas travels. Importantly, the policy limits begin at $1,000,000,00 and average only $230 per year.
Consequences of Inadequate Insurance Converage
A few years ago, someone I represented in my law practice neighbor's child tripped on a Play Station cord while visiting his home and struck her head on a table. Tragically, the child suffered brain damage. However, my client had only $100,000 liability coverage on his home. Consequently, nearly everything my client earned over 20 years on the job was lost.
Another client came to my office to discuss an accident. She was stopped at a stop sign in Park Ridge, Illinois, at dusk. This suburb has few street lights and short concrete posts for street signs. Moreover, while inching forward to see the street name, she did not notice an older woman who stepped off the curb simultaneously. As a result, my client bumped the woman who fell and struck her head on the sidewalk. The woman died that evening. My client had a 100/300 policy and approximately $600,000 in net worth. There was nothing we could do to protect her savings or the equity in her family home.
The Other Drivers
Consider the flip side of you not having adequate coverage - the thousands of uninsured or underinsured drivers you drive alongside every single day. You must protect yourself from damages another driver with too little or no insurance might cause to you or someone in your household.
Whether it is your home or vehicle, the time to ensure that you are adequately protected is now - before you drive again or invite a guest into your home.
Contact CBA today for help finding the right Umbrella Insurance coverage.
Comprehensive Benefits of America
For an expanded presentation of asset protection and financial wellness strategies and to receive regular updates on strategies to protect what you have earned, visit and register with CBAPlan on the link below. Registration is free.
Visit www.cbaplan.com or call 1-312-559-8444 for assistance with registering.
17W220 22nd St.
Oakbrook Terrace, IL 60181