Anyone who has attended farm or ranch educational programs around the country has likely heard talk of the importance of having an estate plan. Certainly, every person should have a will, power of attorney, healthcare power of attorney, and advanced healthcare directive. These are the basic building blocks of any estate plan. [To read more about these documents, click here and see Chapter 14.] Also critical to a successful estate plan is reviewing beneficiary designations and account signatory cards/creation documents to ensure these are up to date and that the account holder understands the effect of these designations at death. Although less commonly discussed as part of estate planning curriculum, these simple steps are extremely important to ensure one’s wishes are carried out.
Probate v. Non-Probate Assets
Oftentimes, a person’s estate is made up of both probate and non-probate assets. Probate assets are those that pass through the probate process, ideally by will if the person has one at their death. For example, if a person leaves her home to her son in her will, this would be a probate asset. Non-probate assets are those that pass through other means, generally by contract or designation. For example, if someone purchases life insurance and designates her son as the beneficiary, the life insurance proceeds would pass by contract outside of the probate process.
Importantly, non-probate assets pass by contract, regardless of what the will instructs. For example, if a person’s life insurance policy designated her son as the beneficiary, but her will says that she wants all assets, including her life insurance policy, to go to her daughter. The life insurance proceeds would go to her son by the designation, regardless of the will.
Review Beneficiary Designations
People should take time to review beneficiary designations and ensure they are up to date and reflect current wishes. Oftentimes, a beneficiary designation is done, forgotten, and not thought about until a death occurs. This is particularly important because oftentimes the value of these assets may be substantial. [To read about a case involving this issue, click here.]
Common assets involving beneficiary designations include life insurance, IRAs, 401Ks, and transfer on death accounts. I always recommend a yearly review of all beneficiary designations just to keep this issue on people’s minds and ensure they do not forget to do so. An added benefit of this process is that it will also encourage people to create a list of their accounts and assets, which is also helpful in the event of one’s death.
Review Account Signatory Cards/Account Creation Documents
Also important is to review how bank accounts are set up and the signatory card contents for such accounts. Even one checkmark or word on a signature card can have major impacts on what happens to these assets upon a person’s death. For example, if a joint account includes language regarding “rights of survivorship,” the joint account holder would receive all funds upon the death of the other holder. If, however, this language is not included, the account would likely be part of the probate estate and pass either by will or the intestate succession process. Again, for many people, these accounts may have been set up years or even decades ago without a second thought being given to the precise language included on the signature card or other account creation documents. [To read about a case involving this issue, click here.]
There are many different moving pieces when it comes to developing and reviewing an estate plan. It can be easy to overlook the importance of reviewing details like beneficiary designations or account signatory cards, but doing so is critically important to ensure one’s wishes are carried out at death.