When we develop estate plans, avoiding probate as much as possible is typically one of our primary goals. Probate tends to be slow and can be expensive.
One of the easiest ways to avoid probate is to make sure all financial accounts have a payable-on-death beneficiary designation. The following is an example of why beneficiary designations are important.
A client died owning a $15,000 brokerage account with a well-known financial institution. Let’s call it the Bank. The client had forgotten to add a beneficiary to this account. Without a beneficiary, the account was part of the probate estate.
The Bank would not even speak to the executor until the executor had been appointed by the probate court and issued a letter of authority. Opening the estate took several weeks, so the account sat idle during this time. When the executor received the letter of authority, he submitted the form required by the Bank.
At this time, the Bank informed the executor that its policy was to not issue a check to the estate. Instead, a new account had to be opened in the estate’s name at the Bank, and the funds would be transferred to the estate account.
Only after the estate account was opened and the funds transferred could a check be issued to the estate. The executor followed the instructions and opened a new estate account at the Bank.
After waiting for about six weeks and not hearing anything, the executor contacted the Bank. At this time, the Bank informed the executor that he had failed to date his signature on the form, so the form would need to be resubmitted.
So, the executor submitted the form with the signature dated. The Bank indicated that it would take six to 10 business days to process the form.
About two weeks later, the Bank informed the executor that the stamp on the letter of authority issued by the probate court was not visible (it was a pressed seal). The executor colored in the stamp with a pencil and submitted the letter of authority to the Bank. Another six to 10 business days processing awaited.
While this was all going on, the Bank closed the new estate account that had been opened for having no activity. The Bank notified the executor that it was unable to transfer the funds because there was no eligible estate account to receive the funds (because the Bank shut it down).
The executor opened a new estate account and updated the required forms and submitted them to the Bank. It took another six to 10 business days for processing.
Finally, the funds were transferred to the new, second estate account held at the Bank. The executor was able to liquidate the account, and the Bank mailed a check to the estate.
This check could then be deposited into the estate account and distributed to the beneficiaries. Although this process didn’t take six to 10 business days, it still took about 10 total days.
This process took the executor many hours of being on the phone with the Bank. Additionally, the executor experienced considerable frustration and annoyance with being seemingly run around in circles.
While $15,000 is a lot of money, by the end of the process, the executor was seriously wondering if it was worth the effort.
If the account had had a beneficiary, the process would have been much easier. The executor could have provided a death certificate to the Bank and a form providing the beneficiaries’ addresses and social security numbers.
The Bank, likely after six to 10 business days, would have issued a check to the beneficiaries and the process would have been complete.
As you consider implementing your estate plan or occasionally reviewing your existing plan, be sure to check that all financial accounts have a beneficiary. The beneficiary may be a trust, specific individuals or even a charity.
Your attorney can help you determine who the beneficiary should be, but it’s up to you to make it happen. Your executor and beneficiaries will appreciate your efforts to add beneficiaries to your account, so that they do not have the same experience as the executor in the previous example.
Moore is an attorney with Wright & Moore Law Co. LPA. Contact him at 740-990-0751 or firstname.lastname@example.org.