Probate Avoidance in Estate Planning and Beneficiary Designations

Beneficiary designations are a cental pillar of probate avoidance. They allow funds to pass directly to your beneficiaries without the need for probate, giving your beneficiary quick access to funds without court involvement. Beneficiary designations direct the payment of funds to the beneficiary listed, regardless of what is stated in your Will or Trust. Ultimately, beneficiary designations are an extremely important feature of your estate plan if you are seeking to avoid probate.

Types of financial accounts with the beneficiary designation feature:

• Retirement Accounts such as IRAs, 401(k)s, 403(b)s, and pensions
• Life Insurance Policies where proceeds are distributed to the named beneficiaries
• Bank Accounts such as Checking, Savings, Investment and Brokerage Accounts
• Annuities and Health Savings Accounts.

Types of beneficiary designations include:

• Payable on Death (POD)
• Transfer on Death (TOD)
• Primary Beneficiary
• Secondary Beneficiary
• Contingent Beneficiary.

In the case of a joint account with right of survivorship, the account will pass to the surviving account owner on the death of the other account holder before the beneficiary designation takes effect. It is important to understand the type of account ownership you have and the difference between an authorized signer, authorized user, account owner, and whether there are survivorship rights for the account.

Be careful with designating a minor child as a beneficiary. It can create problems if the child has not attained the age of 18 at the time of distribution. This is because minors cannot receive outright distributions directly. A guardianship of the estate of minor child or Trust may be needed for the child to receive the benefit of the funds. Trusts should be used when the beneficiary is a minor child, has special needs, or when more control over the timing and manner of distributions is desired.

Because life changes happen, it is imporant to periodically review your beneficiary designations to be sure they are still in line with your wishes. Also, be sure all the names are spelled correctly and match the full legal name of your beneficiary. If your financial institution changes ownership or issues an overall account change notice, double check to be sure your beneficiary designations are still in place. The need to review your beneficiary designations is vital after major life changes like marriage, divorce, or the birth of children. Again, your Will or Trust will not change or update your beneficiary designations, and your beneficiary designations can actually override your Will or Trust. So, it is extremely important to be sure they align with your estate plan goals.

>>> Note that even if all possible estate planning is done to avoid probate, it is still advisable to have a Will in place just in case probate is necessary. That is because assets can come into the estate unexpectedly (such as insurance payouts, lawsuit settlements and awards, previously unknown disributions, refunds, rebates, inheritances, etc.,) and so you should have a Will just in case. Probate without a Will is more difficult, expensive and time consuming than probate with a Will. Additionally, probate may be necessary to appoint an Executor in order to conduct estate business, even if probate is not strictly necessary to pass assets. This could happen if there is the need to: evict a tenant; research, investigate and secure estate property; manage the payment of debts to creditors; carry on a lawsuit on behalf of the Estate such as a wrongful death lawsuit, wrap up a business; or deal with other financial, legal or tax matters on behalf of the estate.

At the Law Office of Laura Vale, PLLC, we help Texas families create comprehensive probate avoidance estate plans that protect their loved ones and avoid unnecessary legal complications. If you would like to review your beneficiary designations or update your estate plan, call us today at 210-588-9881 to schedule a consultation.