Updating beneficiary designation info is vital

Nov 2, 2021 | By: Neil Lyons

A financial planner recently shared an interesting story — ultimately related to probate administration — with me.

Death benefit assignment can prevent headache

She had a new client looking to transfer assets from one financial planning institution to her institution.

This client was a recent widower. His recently departed spouse had a life insurance policy with a death benefit of $250,000.

Of note, his wife had neglected to provide a beneficiary designation for the life insurance proceeds. (It was a simple oversight.)

In addition, the life insurance policy language did not include a default designation (essentially, in the absence of a designated beneficiary, the policy will provide a default designated beneficiary, such as a surviving spouse).

Instead, the policy provided that in the absence of a designated beneficiary, the proceeds from the policy would be distributed to the insured’s estate.

Full probate administration needed

In other words, the only way for the proceeds to be distributed would be for someone, in this case, most certainly the decedent’s surviving spouse, to open a full probate administration.

In a best-case scenario, subjecting those proceeds to probate means the funds the surviving spouse needs will not be available for at least five months. (Five months is the average time it takes to complete a relatively straight-forward and uncomplicated probate administration).

Therefore what might have been a relatively easy transfer of funds for a surviving spouse turns out to be a logistical pain in the tail.

If you have life insurance, take time to ensure you have updated beneficiary designations on your life insurance policies. If you have questions about these issues, contact our firm.