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Written by Thomas Upchurch
Most people’s estate planning package includes either a will or a living trust, and most property passes through probate or the trust. However, certain assets allow—or, in some cases, require—the owner to designate a beneficiary. While passing life insurance proceeds, retirement accounts, and other assets directly to a beneficiary can be more efficient, there are pitfalls.
Attempting to use beneficiary designations without a solid understanding of the Florida laws that impact the interplay between the beneficiary structure, estate laws, taxation issues, and even divorce law can be risky. An experienced local estate planning attorney can be the best source of guidance in the most efficient, cost-effective, and reliable means of passing assets.
A coordinated estate plan is essential to ensure that your wishes are clear and legally binding. Piecemeal construction of wills, trusts, beneficiary designations, and other elements that should be included in a comprehensive estate plan can lead to invalid designations, a lack of legally effective direction, and even estate litigation. Litigation among your heirs and beneficiaries takes a toll on the family and on the estate—the high cost of litigation can significantly diminish estate assets.
When you purchase life insurance, sign up for employer-paid life insurance or start a retirement account, you’ll be asked to designate a beneficiary. “Payable on death” designations are also available for many other types of assets, such as bank accounts and certificates of deposit. Often, these designations are made when the policy or account is set up, and never revisited.
Overlooking those designations can undermine the intent of your estate plan. For example, while language included in a new will can easily override any past wills, a will does not override an existing beneficiary designation—even if that designation was made years earlier under very different circumstances. Your life insurance policy is a contract. Changing the beneficiary is a relatively simple matter, and failure to make such a change is generally determinative. Of course, there are limited exceptions, such as fraud or mental incapacity. However, establishing either may be difficult after the grantor’s death, and even a successful challenge can be drawn out and very expensive.
Thus, a Florida resident who drafts a will leaving all or the bulk of his estate to a particular beneficiary or beneficiaries may have misguided expectations about what those beneficiaries will receive. If a significant portion of his assets include life insurance, retirement accounts, joint accounts with rights of survivorship and other direct beneficiary designations, he may actually be leaving very little when he directs that a loved one receive his entire estate.
Working with an experienced estate planning attorney to ensure coordination among all estate planning documents and beneficiary designations is the best way to protect your loved ones and help ensure that your wishes are carried out after your passing.
Although a beneficiary designation typically stands unless changed, Florida law makes an exception after divorce. The legislature has enacted provisions that invalidate beneficiary designations upon divorce, to protect Florida residents from inadvertently leaving life insurance proceeds, retirement accounts, and other assets to a former spouse. While these provisions work as intended for most divorced people, they can also have unintended consequences. If a Florida resident wants his or her former spouse to remain the beneficiary on life insurance, retirement accounts or other assets—whether as part of a divorce settlement agreement, pursuant to a court order, or simply because the former spouse will be raising their mutual children—he or she must actively reaffirm that designation post-divorce.
Coordinating beneficiary designations with other estate planning documents and making sure that those designations are up to date and valid can be complicated, and a simple mistake can undermine your estate plan, leaving loved ones without the support they need. Work with a knowledgeable Florida estate planning attorney to develop a comprehensive estate plan that ensures that your wishes are clear and your directions consistent and legally effective.
If you already have a comprehensive estate plan in place, be sure to review it with your estate lawyer periodically, especially after an event such as marriage, divorce, death of a family member, adoption, or the birth of a child.