Beneficiary vs. Owner Control of Assets

Many people like to plan their estates by having two names on every asset. That way, when one owner dies, the asset automatically passes to the surviving owner, thus avoiding probate court.

Once a person is added as an owner to an asset, that ownership takes effect immediately, and all owners have equal claim to the asset. Because of this, it is critical to consider carefully who is being named as an additional owner to your assets.

Consider the following scenario: Mr. Smith is named an owner on his mother’s savings account and is currently involved in a divorce. Divorce proceedings require a full disclosure of financial assets. Because he is an owner, his mother’s savings account will be factored into the divorce. Even if Mr. Smith believes that the asset belongs to his mother, in the eyes of the law, he is an OWNER. Failure to disclose the asset can be considered fraud. Taking Mr. Smith’s name off of the asset right before he files for divorce can also be considered fraud. The asset must be disclosed and thus becomes part of the divorce proceeding. (The same result would occur if Mr. Smith were in bankruptcy.)

In addition, if a child and his parents have assets at the same bank (which is common), there is another danger if the child falls behind in repayment of any loans from that bank (car or boat loans, a home equity line, etc.). Loan documents almost always provide that the bank may use the money in other bank accounts to pay any past due loan payments. Some parents have had all of their bank accounts seized because a child who was a co-owner on their accounts had fallen behind on his loan payments.

Because of these and similar circumstances, consider adding a person as a beneficiary to your account rather than as an owner. This way, you maintain full control of your assets, but upon your death, the asset passes right to the beneficiary and avoids probate court.

beneficiaries of your estate
 

Most people have at least one asset that includes a beneficiary designation (i.e, a life insurance policy, 401(k), IRA, annuity, etc.) It is important to remember that a beneficiary designation is the “trump card” and will overrule your will, your trust, or any other document that tries to direct to whom these funds are paid at the time of your death.

Keep Beneficiaries Up to Date!

That is why it is extremely important to keep these designations up-to-date and to retain copies in your personal files. It is not unusual for an employer to lose or misplace a beneficiary designation that you previously filed. If your family cannot find a copy of a more recent designation in your personal papers, then the last designation on file with the employer will control who gets the funds.

It is not uncommon for people to forget to update these designations after a divorce. When the person dies, often many years or decades later, the ex-spouse gets an unexpected windfall because he or she is still named on an old life insurance policy or IRA.

Minor Beneficiaries? Proceed With Caution!

Even more important is to seriously consider whether to name a minor child as a beneficiary. If you do, once you are deceased, that child will get the funds on his 18th birthday – regardless of the amount of money involved or his maturity level to handle those funds. It is often much safer to have your trustee or your estate named as the beneficiary and then to have provisions in your will or trust for someone to manage the funds until the child is a more suitable age.

Enlist an Estate Planning Professional!

These scenarios illustrate how important it is to have professional assistance when planning your estate. A professional will ask questions that you may never have thought of.

Interested in taking the next step? Please Contact Us!

Legal Strategies, P.C. 

Terri North is the Macomb County, Michigan attorney who heads up the Legal Strategies practice. Legal Strategies assists clients in the areas of estate planning, probate and real estate. 
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