Non-probate Assets: Are Your Beneficiary Designations Up to Date?

As published in the Long Island Press, longislandpress.com, and danspapers.com

Up-to-date beneficiary designations are an important part of maintaining the health of your overall estate plan. When naming a beneficiary to an account, such as life insurance, retirement plans, annuities, accounts POD (payable on death), or TOD (transfer on death), such assets will pass outside of your Will, referred to as non-probate assets. This means that your heirs can receive these assets right away, without any court involvement or oversight. But beware: without careful planning, your well-crafted estate plan may be thrown completely off balance if you did not properly account for these non-probate assets.

Just as you may specify who will inherit how much and when in your Will, you may also do so when naming a beneficiary to non-probate assets or accounts. However, because financial accounts pass to beneficiaries outside of your Will, it’s crucial to plan so that these non-probate assets do not unintentionally pass to a minor or to a beneficiary receiving government benefits that may be affected by a direct inheritance. For example, you may wish to leave assets to certain heirs in trust until a given age or even for their lifetime. This is certainly the case for minor beneficiaries and often the case in blended families. This is also very important for children with special needs who can be beneficiaries but for whom the proceeds must be directed into a Special Needs Trust.

As with your estate plan, do not “set it and forget it”: changes in family or financial circumstances may warrant updating your beneficiaries. You should update your beneficiary designations if there are births, deaths, divorces, or significant changes in your or your family members’ health care needs. For example, if you recently had a grandchild, you
may wish to add them as a beneficiary. Under New York law, a divorce automatically revokes beneficiary designations in favor of the ex-spouse, but only after the divorce decree is finalized. Divorce proceedings can often last quite a while, so you should not rely on the automatic revocation.

If you need assistance in integrating or updating your beneficiary designations with your overall estate plan, our experienced Elder Law and Trusts and Estates attorneys will guide you through the options and issues, answer your questions, and provide valuable insight.