Most of us are familiar with naming beneficiaries in our life insurance policies. When you initially acquire life insurance, you will be asked to name a beneficiary or beneficiaries [the person(s) who will receive the proceeds of the insurance upon your death]. When was the last time you checked who you named to receive the life insurance proceeds at your death? Frequently, after initial acquisition of the insurance policy, it is “tucked away” and not reviewed for many years. Intervening circumstances may have occurred which warrant a change of beneficiaries such as marriage, dissolution of marriage, birth of children, death of the beneficiary or beneficiaries. You should not rely on your memory; instead, contact the insurance company and verify the present beneficiaries.
Beneficiaries can also be established for many other types of assets. Bank accounts can include beneficiary designations (commonly referred to as “payable on death” or “POD” designations). Similar designations can be made on credit union accounts. Annuity policies usually have one or more beneficiaries designated. Group medical insurance policies frequently include small life insurance benefits for which beneficiaries can be designated. Pension and retirement accounts [such as IRA accounts, Keogh plans, 401(k) and 403(b) plans] include provisions for designation of beneficiaries. Real estate in Arizona can include beneficiary designations by a “Beneficiary Deed”.
Contingent beneficiaries can also be named; that is the person(s) who will receive the account, proceeds or other benefit if the primary (first named) beneficiary is deceased. If no contingent beneficiary is named and the primary beneficiary is deceased, the resulting recipient of the benefit can vary. For a life insurance policy or annuity policy, this could mean the proceeds become subject to probate to determine the proper recipient or the policy might have a designated order within the policy directing distribution to certain related persons. For bank and credit union accounts with no designated living beneficiary, probate may be required.
The author of this blog has personally met with clients who, after review of beneficiary designations, discovered: (1) a deceased person was named as beneficiary with no contingent beneficiary named; (2) a parent was named as beneficiary many years ago before the client married and had children; (3) no beneficiaries are named; (4) the named beneficiary is not the person the client wants to receive the benefit; (4) a former spouse is named as beneficiary; (5) minor children (children under 18 years of age) are named as beneficiaries (this will require court appointment of a guardian and/or conservator to receive and hold the benefit for the minor children until adulthood).
Never rely on your memory rather than actually checking with the institution! Sometimes clients state unequivocally the person(s) who is/are the beneficiaries only to discover, after actually checking, the beneficiaries are not those stated by the clients. The surprised responses are frequently “I don’t remember doing that” or “I thought I changed the beneficiary”.
A most unfortunate thing will occur if your desired beneficiaries are not named: the person(s) actually named will receive an unintended benefit and/or the person(s) you intended receive the benefit will be omitted, overlooked, forgotten.
There are times when it is undesirable to name an individual as the beneficiary on assets such as bank accounts, IRA, 401(k), 403(b), Keogh Plan accounts, life insurance or annuity policies, real estate. Some examples of such situations are: (1) the beneficiary is a minor (not an adult because of age); (2) the beneficiary is incapable of handling/owning the assets because of substance abuse or incapacity; (3) the beneficiary is receiving public benefits which are based on financial needs such as Medicaid, Supplemental Security Income (“SSI”); (4) the beneficiary is a “spendthrift” (a frivolous spender of funds); (5) the beneficiary has a spouse or significant other who is in control of the beneficiary and imprudently uses funds. There are other situations as well but these illustrate the point.
If the individual is named as beneficiary, the beneficiary designation will “trump” any special provisions included in a will or trust for the beneficiary. In other words, the beneficiary will receive the funds or asset irrespective of what restrictions are set forth in the will or trust. Therefore, if the beneficiary is a minor, a conservator will have to be appointed to receive and hold the funds until the beneficiary reaches the age of majority (becomes an adult) at which time the funds or asset will be transferred to the beneficiary who will have unrestricted use of the funds or asset. In other cases, the beneficiary will receive the funds or asset and have unrestricted use of the funds or asset.
If you wish to name someone as a beneficiary who has any of the above or similar issues, it is critically important the matter be discussed with the attorneys at West, Longenbaugh and Zickerman who can provide the advice and solutions to these issues. Contact us for assistance. We provide big firm representation and small firm caring for our clients.