Tuesday, August 5, 2014
The exclusive use of beneficiary designations for an estate plan is an improper substitute for a properly drafted will or trust-based estate plan. Without supplementary planning, there is no guarantee beneficiary designations will avoid the intrusion of the probate court.
Banks and financial institutions particularly like beneficiary designations because it is easier for them. After your death, all they need is a certified copy of your death certificate, then they make the distributions according to the designations and are done. They do not have do deal with probate court papers or review a trust.
Yet, the problem with this is that beneficiary designations are death instruments. They only take effect at your death. If you become mentally incapacitated and can no longer make decisions for yourself, your beneficiaries have no legal authority to act on your behalf. With a fully drafted estate plan, you are in control during your lifetime, and you and your loved ones are provided for in the event of your mental disability.
See Matthew Wallace, Beneficiary Designations Not Substitute for Estate Plan, The Times Herald, Aug. 2, 2014.