Attorney Ray Kerlick describes how account beneficiary designations work with your will and how they can have unintended consequences. Call 800-929-1725 for an appointment with Mr. Kerlick. We have law offices in Fort Bend County, Wharton County, and Matagorda County.
Summary of Why Beneficiary Designations Are Important
Hi, this is Ray Kerlick from Wadler, Perches, Hudl & Kerlick and I’m here in our Fulshear office and wanted to talk a little bit today about beneficiary designations. Seems like a pretty boring subject and to a certain extent I suppose it is. But it’s important from an estate planning standpoint.
Typically beneficiary designations will always trump a will. And so most people not totally sure how that works and the answer is pretty much always the same. If there is an account whether it be an investment account, a bank account, a life insurance policy, an annuity, anything on which you’ve designated a beneficiary, that beneficiary designation will be honored regardless of what your will may say. So we need to take these things very seriously.
There’s a few very basic things that I would want to make sure everyone’s aware of. So never, ever please make a designation of a beneficiary who is a minor. This will effectively result in that minor’s funds being trapped in essentially a blind trust until such time as they turn 18. As soon as they turn 18 all of those funds will be released to them without any restrictions. Most of the time we don’t want an 18 year old to have a big sum of funds in their hands because they’re unlikely to use those funds wisely.
So typically what we will do as part of our estate planning, we will set up what’s called a testamentary trust. That testamentary trust establishes a trust for any minor beneficiary and it will provide that a trustee will manage any funds that would go to that minor beneficiary, both before they turn 18 and even after they turn 18. So again typically we set up an arrangement whereby those funds will be held at least partially in trust until that minor child reaches either age 25 or 30. So for example we’ll have a staggered release of the funds.
At age 18 the child will receive about 25% of the cash value, at age 25 another 25% and then the remainder at age 30. In the meantime the trustee that you designate and again this is just a trusted individual, someone that you have confidence will take care of your child, that person has full access to the funds to use them for the health, education and welfare of the child until such time as the funds are released to the child. So this is a estate planning tool, but it’s also one that will come into play when we have beneficiary designations.
So when I go to have my contingent beneficiary designation, my spouse should almost always be my 100% primary beneficiary. With my secondary beneficiary typically I would suggest either having your estate be the beneficiary in which case the funds will flow through the will and into that trust or alternatively go ahead and just designate that person that you named as your trustee as the beneficiary, but make sure that you’ve designated them as a trustee for the benefit of your children. That way the funds will be released to him, but can only be put into an account, a trust account, for the benefit of your kids. So even something as mundane as an account beneficiary designation becomes a very important part of your estate planning preparations.
So please contact us for an appointment by calling 800-929-1725. Thanks.
Offices in Fort Bend County, Wharton County, and Matagorda County
We have law offices in Fulshear and Richmond in Fort Bend County and in Wharton and El Campo in Wharton County. Our newest office is in Bay City in Matagorda County. You can make an appointment at any of our offices by calling 800-929-1725.