Common Mistakes Made on Beneficiary Designations

Assets like life insurance, retirement accounts and annuities are governed by beneficiary designations.
Assets like life insurance, retirement accounts and annuities are governed by beneficiary designations which override your will.

Many accounts and other assets are governed by beneficiary designations. Examples include life insurance, 401(k)s, IRAs, and annuities. These assets rely on contractual provisions with the financial institution to designate who receives the benefits upon the death of the owner.

Kiplinger’s recent article entitled “Beneficiary Designations – The Overlooked Minefield of Estate Planning” describes several mistakes that people make with beneficiary designations and some ideas on how to avoid problems for you and your family members.

Believing that Your Will is More Powerful Than It Really Is. Many people mistakenly think that their will takes precedence over a beneficiary designation form. This is not true. Your will controls the disposition of assets in your “probate” estate. However, the accounts with contractual beneficiary designations aren’t governed by your will because they pass outside of probate. That is why you need to review your beneficiary designations whenever you review your estate plan.

Allowing Accounts to Fall Through the Cracks. Inattention is another thing that can lead to unintended outcomes. A prior employer 401(k) account can be what is known as “orphaned,” which means that the account stays with the former employer and isn’t updated to reflect the account holder’s current situation. It’s not unusual to forget about an account you started at your first job and fail to update the primary beneficiary, which could be a former spouse.

Not Having a Contingency Plan. Another thing people don’t think about is that a beneficiary may predecease them. It is important to name a contingent or secondary beneficiary in the event the first beneficiary is not survivig.

Not Paying Attention to a Per Stirpes Election. If a person names several beneficiaries (such as children) as primary beneficiaries to share equally in the account or life insurance policy at the owner’s death, what happens if one of the beneficiaries is not surviving? Some beneficiary designation forms state that the deceased beneficiary’s share automatically goes to the other surviving beneficiaries. Other beneficiary designation forms give the owner the option to state that the deceased beneficiary’s share should pass to the deceased beneficiary’s children. This is known as a per stirpes election. Many times people are unaware as to which option they have chosen on the beneficiary designation form.

Naming a Minor or Incapacitated Person as a Beneficiary. If a minor or incapacitated person is named as beneficiary, unless the beneficiary designation form allows for the appointment of a custodian or trustee to accept the benefits on behalf of the minor or incapacitated person, a court-appointed guardian may be necessary for the minor or incapaciated person to receive the benefits. Also keep in mind that if an incapaciated person you’ve named as beneficiary is receiving government benefits, distributions from a retirement account, annuity, or life insurance policy, may jeopardize his or her eligiblity to receive the government benefits.

It’s smart to retain copies of all communications when updating beneficiary designations in hard copy or electronically. These copies of correspondence, website submissions and received confirmations from account administrators should be kept with your estate planning documents in a safe location.

Remember that you should review your estate plan and beneficiary designations every few years to make sure that they are coordinated and that they say what your really want.

You may also be interested in https://galligan-law.com/trust-owned-life-insurance-in-your-estate-plan/.

Reference: Kiplinger (March 4, 2020) “Beneficiary Designations – The Overlooked Minefield of Estate Planning”

 

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Gene May Be a Link between Dementia and the Coronavirus

Is a gene the link between dementia and vulnerability to Covid-19?
Is a gene the link between dementia and vulnerability to Covid-19?

The study in Great Britain is the latest to suggest that genetics may play a part in why some people are more vulnerable to COVID-19 than others. It may also help to explain why people with dementia have been hard hit.

“It is not just age: this is an example of a specific gene variant causing vulnerability in some people,” said David Melzer, a professor of epidemiology and public health at Exeter University and a co-author of the study.

The Guardian’s recent article entitled “Research reveals gene role in both dementia and severe Covid-19” explains that the study published in the Journal of Gerontology: Medical Sciences reports how researchers analyzed data from the UK Biobank, where genetic and health data on 500,000 volunteers aged between 48 and 86 has been collected.

The researchers focused on a gene called ApoE which gives rise to proteins involved in carrying fats around the body and can exist in several forms. One such variant, called “e4”, is known to impact cholesterol levels and processes involved in inflammation, as well as increasing the risk of heart disease and dementia.

They found 9,022 of almost 383,000 Biobank participants of European ancestry studied had two copies of the e4 variant, while more than 223,000 had two copies of a variant called “e3”. The former have a risk of dementia up to 14 times greater than the latter.

The researchers then studied positive tests for COVID-19 between March 16 and April 26, when testing for the coronavirus was primarily done in hospitals, suggesting the cases were severe.

The results showed that 37 people who tested positive for COVID-19 had two copies of the e4 variant of ApoE, while 401 had two copies of the e3 variant. After considering factors such as age and sex, the researchers say people with two e4 variants had more than twice the risk of severe Covid-19 than those with two e3 variants.

One professor observed that it is possible that the role of ApoE in the immune system is important in the disease. Future research may be able to harness this to develop effective treatments.

You may also be interested in https://galligan-law.com/the-symptoms-of-early-onset-alzheimers-disease/.

Reference: The Guardian (May 26, 2020) “Research reveals gene role in both dementia and severe Covid-19”

 

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Trust-owned Life Insurance in your Estate Plan

Trust-owned life insurance is a useful tool to accomplish estate tax and long term care planning, but requires a sophisticated trustee to handle it.

Trusts are frequently used in the estate planning process. They help with in the distribution of assets, incapacity planning and probate avoidance, making certain that everything is distributed to the right people and entities, provide creditor protection and more.  Many people don’t know that you can even place a life insurance policy within a trust.  Some trusts, typically those designed to reduce estate taxes or perform long term care planning, use trust-owned life insurance (TOLI) to accomplish those goals.

Investopedia’s recent article entitled “Can You Trust Your Trustee?” explains that life insurance in a trust is called trust-owned life insurance (TOLI). A TOLI is like bank-owned and company-owned life insurance. Trustees often do a good job of completing basic tasks, but conflicts and problems can pop up when trustees don’t understand where their loyalties should be and how to deal with complex financial issues.  A trustee has a fiduciary responsibility to the beneficiaries of a trust. The trustee is required to manage the trust assets pursuant to the instructions of the trust for the beneficiaries.

The trustee must, therefore, actively manage the insurance policy, or policies, that are owned by the trust. This includes ensuring the trust’s purposes are being served, such as providing notice to beneficiaries of withdraw rights.  It also includes determining if the policy is performing up to the projections reflected in the original life insurance illustration and identifying alternatives more in line with the goals of the trust.  New life insurance products have made some policies sold in the past obsolete and an old under-performing policy can often be replaced. However, some trustees don’t possess the skills necessary to oversee trust-owned life insurance. A trustee should understand and be aware of:

  • The policy’s performance relative to expectations
  • The last time the life insurance policy was reviewed
  • If there are other policies that may do a better job of meeting wishes and stipulations expressed in the trust document
  • Whether the credit rating of the insurance company that issued the policy has decreased and
  • If the allocation of the sub-accounts is still aligned with the investment policy statement.

Now, not all insurance needs to be TOLI.  It is important to discuss this with your attorney to determined whether a trust which owns life a life insurance policy is beneficial to you, and whether to have your insurance owned by your trust.  See here for trust basics to address this topic.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

Trust-owned life insurance can have an important role in the estate plans of many people, but not all trustees have the bandwidth when it comes to insurance and estate planning to fulfill their fiduciary responsibilities. Ask an experienced estate planning attorney for assistance.

Reference: Investopedia (June 25, 2019) “Can You Trust Your Trustee?”

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