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It’s time to update your beneficiaries
Too often, beneficiaries listed on life insurance polices, deferred compensation accounts, or estate plans are outdated or carry with them significant risk.
Outdated beneficiary designations
Having beneficiary names that no longer are cur- rent to your wishes is more common than you can imagine. Chances are that your existing beneficia- ries list either does not include someone or in-
cludes a person you no longer wish to receive the benefit. Here are some examples:
Previous marriages. If you are currently divorced or remarried and still have your former spouse listed as
a beneficiary on a policy or account, you will not like
the outcome if something happens to you. By law, your ex-spouse will receive all the beneficiary proceeds. I have
had widows contact me desperate after their husbands died, after finding out that an ex-spouse is listed in the deferred com- pensation account and life insurance policy. However, there is nothing that you can do now except locate the former spouses and distribute all funds to them.
Not listing all your children. I cannot count the number times that the last one or two children to be born to my clients were not listed on their insurance policies as beneficiaries. For- tunately, we are often in the office and ready to make the nec- essary additions.
Minor children
You are allowed to list a minor child or grandchild or any other person under the age of 18 as a beneficiary. However, it is rarely the right thing to do. If you have listed a minor as a primary or successor beneficiary on a policy or account and you die before he or she reaches 18 years of age, all of the proceeds will go to probate and stay under the court’s control until they reach 18. Secondly, not many people want their children to receive large sums of money at that age, which is when probate will release it
TOM TUOHY
all to them. As I like to say, 18 may be the age of majority but is rarely the age of maturity.
What you should do is name your living trust as the beneficiary until your child is over 18 and reaches the age you choose to receive the funds. Your trust will pro- vide for their education, care and maintenance, under
FOP
Benefits Plan
the control of your chosen trustee and all private, out- side the court’s control and expense.
Financial troubles
No matter what age you feel is appropriate for your bene- ficiaries to receive their inheritance, there is no way of know- ing whether they will be going through a divorce, bankruptcy or lawsuit at the time of your death. Listing your living trust as beneficiary protects against all of those risks with spendthrift provisions, preventing any creditor or spouse from claiming the gift of your estate.
Disability issues
If one of your beneficiaries acquires a disability through ac- cident or illness before your death, your estate funds will go to the government for reimbursement for public benefits, or your beneficiary will lose their SSI or Medicaid benefits. You can pre- vent this from happening with a living trust that has precau- tionary supplemental needs provisions.
Living trusts
At the end of your life, or if you become incapacitated, if you have property or bank accounts in your name, they are at risk of probate.
• A will must be probated. The rule is that no one can legal- ly sign your name. Therefore, at your death or incapacity, all assets in your name are subject to the full probate pro- cess, which averages 18 months and is costly.
• A living trust completely avoids probate.
• A living trust estate plan includes both health care and
financial power of attorney documents and a last will and testament for guardianship of minor children and to “pour over” any assets still in your name at your death, out of probate.
Revocable living trust
This is a written, legal document that allows you to privately and efficiently pass your assets (real property, bank accounts, stock, saving certificates, personal property, etc.) to your fam- ily, friends, or charities after your death — outside of probate court. Your life insurance policies and deferred compensation accounts can name your living trust as beneficiary, subject to essential tax considerations.
Tom Tuohy is the founder of Tuohy Law Offices and the FOP Ben- efits Plan. He has been a police lawyer for 37 years. His father was a CPD detective, and his grandfather was CPD Chief of Major Investigations. You can reach Tom at 312-559-8400. Visit www. fopbenefitsplan.com or call 866-729-5454 for assistance with registering.
20 CHICAGO LODGE 7 ■ APRIL 2020