As we discussed in last week’s post, under California law there are some assets in an estate that will pass to beneficiaries independently of the instructions in a will or trust. These non-probate assets include funds or securities in bank accounts, investment accounts and some retirement accounts. In most cases, these assets will pass to a beneficiary named in the account agreement when the original account owner dies.
For many people, these non-probate assets will be a significant part of their estate. Unfortunately, many people fail to update these beneficiary designations when family or financial circumstances change. The result can be that significant assets will pass to a person the decedent would no longer have designated had they updated the account document before death. For surviving family members, this can come as an unwelcome surprise.
One commentator has said the failure to update beneficiaries of non-probate assets is the most common mistake people make in estate planning. Fortunately, in most cases, the solution is relatively easy: the account owner simply fills out a new beneficiary form. If the account owner changes the beneficiary to a person other family members might not expect, communicating the reasons for the change can go a long way toward preventing hurt feelings and resentment after one passes away.
When the named beneficiary is a spouse, California law will automatically cancel the beneficiary designation on some non-probate assets, including bank accounts, in the event of divorce. There are exceptions to this rule, however, and it is critical to review and address these beneficiary designations during the divorce proceedings and when updating one’s estate plan after the divorce.
Source: Thestreet.com, “How to Avoid the Most Common Estate Planning Mistake,” Scott Gamm, Oct. 31, 2015