Estate Planning Pitfalls

Beneficiary designations are a critical part of your estate plan, even if you have a will or a trust. Wills are always probated if there are assets to probate. Probate occurs only on those assets, if any, that do not automatically pass by operation of law and the total value is more than $75,000 and does not include real estate. There are four types of beneficiary-like designations that pass by operation of law: 1) the traditional beneficiary designation – in a life insurance or retirement plan, for example; 2) a payable upon death designation for a bank account; 3) a transfer on death deed or designation – for a homestead (through recording the deed in property records), a vehicle (through the Department of Motor Vehicles designation), or a survivorship designation of ownership (stock or membership unit certificates); and 4) joint ownership with rights of survivorship.

If your beneficiary designation names a person, then the asset will be directly given to that person regardless of what is stated in the will. If your beneficiary designation names your revocable trust, then the asset will be directly given to the Trustee of your revocable trust to distribute that asset in accordance with the terms of the trust. Generally a person names their revocable trust as the beneficiary of the asset either because of estate tax issues or because they want the Trustee managing the assets until a person’s child reaches a certain age.

If your beneficiary designation is blank, or your beneficiary designation states to your estate, then that asset will be probated and distributed as you requested in your will. If you do not have a will, then that asset will be probated and distributed as the Minnesota legislature has pre-determined.

If you do not have an estate tax issue and you do not have any concerns with your children receiving the asset at age 21, which is generally the age of inheritance in Minnesota (some courts will transfer the asset to the child at age 18), you can effectively and efficiently use a simple will and beneficiary designations to transfer your assets to whom you want them to go to upon your death. If your assets all transfer through a beneficiary-like designation, then your will is not subject to probate.

Hypothetical #1: Taylor and Travis jointly own a vehicle and a homestead that they have a transfer on death designation/deed upon their death to their three adult children. In addition, they have a payable upon death designation on all of their joint bank accounts to their three adult children. Finally, their retirement accounts and life insurance policies have each other listed as a primary beneficiary and their three adult children as a secondary beneficiary. They pass away together.

Analysis: Everything passes automatically by operation of law to their children outside of probate, and as a result, there is no probate.

Hypothetical #2: All of Taylor’s and Travis’s assets are in Taylor’s name. However, Taylor has named Travis as the beneficiary on all of her assets through a beneficiary-like designation.

Analysis: Everything passes automatically by operation of law to Travis outside of probate, and as a result, there is no probate.

Spangler and de Stefano, PLLP advises and represents individuals and business owners on their estate plan – planning for death and incapacity/incompetency.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.