When I speak with a client for the first time, we routinely speak about their family, their children, and of course, their assets. When we speak about their assets, there will routinely be questions about beneficiary designations, jointly owned accounts, and transfer on death designations on different types of accounts.
In fact, I have spoken with several families over the years who have informed me of the following:
“We Do Not Need Any Estate Planning. Our Financial Advisor Informed Us That All of Our Accounts Have Beneficiary Designations. Therefore, We Do Not Need to Engage in Estate Planning.”
First, this is legal advice being provided by a non-attorney, therefore I would seriously question the person providing the advice. Second, this is extremely horrible advice, as the case of The Estate of Barbara Kester showed when beneficiary designations, jointly held accounts, and TOD designated accounts can completely blow up!
This is a case based out of the State of Florida. In this case, Ms. Kester wrote a will leaving her entire estate equally to her five children. However, there were a few other accounts that had beneficiary designations and joint ownership. Specifically, there was a CD and a bank account that named her daughter, Glenna, as the beneficiary. There was also an annuity that named Glenna and her two brothers as beneficiaries.
As you may already know, when you name a beneficiary on an account, or a jointly held account, that account passes immediately upon the moment of death to the beneficiary or the surviving joint owner. As such, these accounts are not administered through the probate court process and would not be subject to Ms. Kester’s will that stated the estate to be divided equally among her five children.
What happened next was an estate contest filed by two of Glenna’s sisters. However, an appellate court would eventually rule in favor of Glenna that she acted properly in dividing the proceeds from the CD, bank account, and annuity.
Now, you may be saying, “well, everything worked out the way it was supposed to. So, what is the big deal?” As I said earlier, an appellate court ruled in Glenna’s favor. This means that the case went through the trial court level, and then the appellate court level. Therefore, how much money was spent out of the estate by the way of legal fees for the original case and the appeal. I can only speculate. However, I would not be surprised if the legal fees exceeded $100,000!
I am not saying that you should never use beneficiary designations or joint accounts. However, I say you should use caution when completing these forms as part of your estate and legacy plan. These forms should be given the attention they deserve and should be used in conjunction with your estate plan.
Chances are, Ms. Kester intended on Glenna dividing the proceeds from the CD, bank account, and annuity equally among all her children. However, that is not what happened here because her beneficiary designations said one thing and her Last Will and Testament said something else.
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