Beware the Beneficiary Form – This is a Four Part Series

By: Fredrick P. Niemann, Esq. an Estate Planning Attorney
Part 1 of 4         

Do you think your estate planning is done once you’ve gone to the trouble of making a will or trust?  Think again. All your hard work can be undone with a stroke of a pen when you open a bank, brokerage or retirement account.  Individuals have the option of naming beneficiaries directly on a wide range of financial products.  When the account owner dies, the assets go directly to the beneficiaries named on the accounts, bypassing the sometimes long and costly probate process.  The problem:  Because these beneficiary designations override your will or trust, they need to be carefully coordinated with your over-all estate plan.

People don’t realize the importance of this.  A carelessly named beneficiary on a financial account can cause a loved one to be disinherited, a disabled child to lose government benefits, and heirs to be slapped with a big tax bill.  Seeing so many cases like this, I’ve coined a term for it: “bank-teller estate destruction.”

Many people simply don’t remember whom they named as beneficiaries of accounts they opened years ago.  Fredrick P. Niemann, a Freehold New Jersey lawyer, tells of one man who wrote a will leaving his entire estate to his long time girlfriend, and on his deathbed recalled that he had certificates of deposit naming relatives, some since deceased, as beneficiaries.  The man tried to change the beneficiary designations before he died, but the case is now mired in a lawsuit.

Advisers tend to recommend reviewing all of your beneficiary designations regularly, at least every few years, but certainly after you experience a life-changing event, such as a marriage, divorce, birth or death of a loved one.  Job-changers and retirees also take note:  Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA.

What kinds of accounts can have beneficiaries?

US savings bonds have had forms for naming beneficiaries for 50 years.  Bank accounts and certificates of deposit can be made payable on death (POD) to a beneficiary.  Same with so called Transfer on Death (TOD) registrations for securities, including stocks, bonds and mutual funds. Life-insurance benefits and retirement –plan assets are paid directly to the beneficiaries named on those accounts.

POD and TOD accounts were devised as alternatives to joint accounts, which also bypass probate.  When one owner of a joint account dies, the assets automatically go to the surviving owner.  But this is not a particularly safe way to leave funds to anyone because the assets are subject to your co-owner’s whims and creditors.

 
For more information on beneficiary designation and how they relate to New Jersey probate and estate planning, please contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or email him at fniemann@hnlawfirm.com/.  In our next post we will address who can be listed on a beneficiary designation form.

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