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The Importance of Beneficiary Designations and Beneficiary-Designated Accounts

Posted on by Brock Benson

Benson Law, PLLC was recently contacted by a young man whose father passed away without a Will, leaving a bank account with a local bank branch that had a balance of less than $1,500 at the time of the father’s death. The young man was the father’s only child, but the father did not have a payable-on-death or other type of beneficiary designation on the bank account, resulting in the local bank’s legal department, located in another state, refusing to turn over the funds held in the account to the son without the son obtaining Letters of Administration and a Determination of Heirship through the probate court. The young man lives in another state and the cost to the son of obtaining Letters of Administration and a Determination of Heirship, including the costs of travel to Texas, would completely exhaust the funds in the bank account. The young man is now in a real bind as to how to resolve his father’s bank account.

This case study highlights the importance of consulting in advance with an experienced estate planning attorney regarding end-of-life issues, no matter how insignificant they may appear to be. Many clients do not understand that some, but not all, assets will pass through a Will. In fact, the typical client, whose assets may include a home, vehicles, retirement plan, savings and checking account, and a life insurance policy, may find that most of their assets will pass to their designated beneficiaries outside of their Will, depending on how their retirement and bank accounts, and life insurance policies, are set up. In general, a retirement plan or life insurance policy is a contract between the client and the company holding the plan or policy, and that company will pay out the proceeds of the plan or policy to the client’s beneficiaries as designated on the contract, not to those persons named in the client’s Will. Likewise, a bank will honor a payable-on-death (POD) designation rather than a testamentary clause in a Will, and a bank account held jointly with another person will transfer to that other person upon the death of the primary account holder.

A routine estate planning consultation with Benson Law, PLLC includes a discussion about all of the client’s assets and accounts, how they are held, and to whom the client wishes they will pass. In some cases, a client’s estate plan is best carried out by avoiding the beneficiary or POD designation, and allowing assets to pass through the client’s Will. In others, such as the case study set forth above, it would have likely been in the father’s best interests to designate his son as the POD on his bank account, thereby avoiding uncertainty, heartache, and unnecessary expense for his family.