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Home | It’s 11:00 p.m. – Do You Know Who Your Account Beneficiaries Are?

As an attorney who practices in the area of Trusts and Estates, one of the most important pieces of advice I give to clients is to establish a revocable living trust to own real estate, small business interests, and other assets in order to effectuate the transfer of these assets without their heirs being required to file a probate action (or possibly multiple probate actions) upon their deaths. However, while real estate and small business ownership are certainly the most common triggers for probate, it is not the only way folks can get caught in that trap.
Most of us have life insurance policies, 401(k)’s, IRA’s or other accounts that require us to designate at least one beneficiary to receive the proceeds of those accounts when we pass away. Failing to keep these beneficiary designations updated is another easy way to unintentionally force your heirs into the time, cost and headache of probate at your death.
I am actually dealing with this for a client. Changing the names to protect the innocent, let’s call my client Jeff. Jeff’s and his wife are the parents of three children and Jeff’s wife named him as the sole beneficiary of her life insurance policy when the policy was issued in 2001. In 2004, Jeff and his wife divorced. However, the beneficiary designation on the life insurance policy was never changed. Jeff’s wife remarried in 2006, but she still didn’t change the beneficiary designation forms. She had another child with her new husband (her fourth child) in 2008, but no changes were made to the beneficiary forms for the life insurance policy.
Last year, Jeff’s ex-wife died suddenly at the age of 43. When her new husband went to collect the life insurance proceeds, he was told that Jeff, not him, was named as the beneficiary. When he told the insurance company that Jeff is the deceased’s ex-husband, they replied that he needed to file a probate action to get the life insurance proceeds delivered where they were supposed to go. This is because Utah (and most other states) have laws that automatically revoke the beneficiary designation of a spouse when a divorce occurs. However, Utah law (and the laws of most other states) don’t automatically substitute someone else in as a beneficiary for the divorced spouse. The beneficiary becomes the person who is named as the residuary beneficiary of the estate under the deceased person’s will, or who is designated as the beneficiary under the intestacy laws of the state where the deceased person resided at the time of his or her death.
In Jeff’s case, his ex-wife left no will, which means that under Utah’s intestacy laws, her new husband and his three children are supposed to share in the proceeds of the life insurance policy in varying percentages. However, Jeff (on behalf of his three children) and his ex-wife’s new husband have been required to pay an attorney (yours truly) to file a court case and walk through the formalities of the probate process in order to effectuate what Jeff’s ex-wife could have accomplished by changing her beneficiary designations in a timely manner.
Ok, so when should you at least think about whether you need to change your beneficiary designations? Well, it sort of reads like a list of the biggest days of your life (both good and bad):

  1. You get married.
  2. You get divorced.
  3. You have a child.
  4. Your spouse passes away.
  5. Your child gets married, divorced or has a child.
  6. Your child passes away.

Keeping your beneficiary designations current will keep your heirs out of probate, and more importantly, will make sure that the assets in your life insurance policies, retirement accounts, and other accounts go where you actually want them to go. Keep in mind that the strategy of naming your spouse as a primary beneficiary and your revocable living trust as the secondary beneficiary is a great way to keep on top of this. That way, you only need to change your beneficiary forms if you get a divorce. Any other changes can be dealt with directly in the trust.
Jarom Bergeson is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Cedar City, Utah office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at [email protected] or by phone at (888) 801-0010.

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