Charles N. Doberneck

Subtitle

Blog

Beneficiary Designations And Probate Avoidance

Posted on February 11, 2015 at 8:50 PM

Creating and fully funding a living trust during a person’s lifetime is one way to avoid “probate” (see the “Glossary” tab at the top of this page). As they say in the Geico commercial----“everybody knows that.” But did you know that there are other methods of avoiding probate? Non probate property includes property that passes by beneficiary designations other than those in a will, such as life insurance, retirement accounts, investment accounts, annuities, real estate, and other property too. Most beneficiary designations are done as part of contractual relationships with insurance companies, banks, or investment companies (like Charles Schwab or Fidelity). Beneficiary designations also include “pay on death” (“POD”, “transfer on death” (“TOD” on various types of property, including accounts, real estate, and vehicles.

 

In addition, although they do not involve “beneficiary designations” in the same sense as beneficiary designations on life insurance, various types of accounts, or annuities, the creation of interests in real estate with another person or persons may also result in non probate transfers. For example, real estate in the names of a married couple creates a “tenancy by the entirety” by which the surviving spouse becomes the sole owner of the real estate upon the death of the deceased spouse regardless of whether there is a will or what the will provides. Real estate may also be titled in the names of two or more persons as “joint tenants with right of survivorship.” In the event of one joint owner, the surviving joint owner(s) becomes the owner(s) of the property.

 

There are potential pitfalls and dangers connected with using non probate beneficiary designations or pay on death or transfer on death designations. One is that they operate apart from, and even perhaps contrary to, provisions in a will or trust. This means that a beneficiary or pay on death or transfer on death designation, once made, can only be changed or revoked by a later designation that is delivered to the insurance company, bank, or investment company, and NOT by a will or trust. Another pitfall that occasionally occurs is that divorce does not automatically affect an existing beneficiary designation, and therefore the failure to delete the former spouse as a beneficiary and to name new beneficiaries will result in the insurance policy or account having to be paid to the former spouse.


Furthermore, owners of the above described types of property will often neglect to name contingent beneficiaries who would be entitled to receive all or part of the property subject to the beneficiary designations if one or more primary beneficiaries do not survive the owner. Finally, it is important to periodically review one’s beneficiary designations to make sure that they reflect the owner’s current wishes and changes in the owner’s family situation as time goes on. Many of us have a tendency to forget about our beneficiary designations for years after executing them. When was the last time you reviewed your beneficiary designations and other forms of non probate property ownership?

Categories: Probate And Avoiding Probate, Joint Property And Transfer On Death Property, Beneficiary Designations