Most people put an immense amount of thoughtful effort into planning their estate in order to make its later administration as smooth as possible. Responsible estate planners in California typically update their wills, trusts and other important documents on an annual and as-needed basis to make sure that everything is still in order. However, even the most dedicated estate planner might be missing an important issue that can tangle the estate administration process.
Inheritances are often clearly spelled out in wills or left behind in the form of a trust, but simply writing down that a person should receive a certain asset does not necessarily make it so. Accounts and other assets with beneficiary designations — such as retirement accounts, pensions and even life insurance plans — can be the cause of this trouble. The trouble also stems from individuals falling under the impression that their last will and testaments will outrank the designated beneficiary.
In reality, assets with these types of beneficiaries are not subjected to probate, and instead must pass on to another individual as designated by the named beneficiary. This means that an account with an outdated beneficiary — an ex-spouse, for instance — might go to that individual regardless of what a will otherwise states. This interpretation of the law was backed up by a Supreme Court ruling.
So what does this mean for concerned estate planners? Regular adjustments and updates to all estate planning documents is still a key aspect of ensuring a smooth estate administration, but that alone is not enough. When revisiting estate documents, people in California should also be sure to review beneficiary designations and update as necessary.
Source: NerdWallet, “Avoid This Estate Planning Mistake“, Larry Weiss, May 6, 2016