Co-Authored by Joanna C. Feldman
Many people ask whether – or even why – they need a Last Will and Testament (“Will”) if they designate beneficiaries to inherit their assets upon their death. In some cases, designating beneficiaries on all assets may be appropriate. In other cases, however, unintended complications can arise. In all cases, even if it winds up never being used, proper estate planning includes the execution of a comprehensive Will.
Upon death, assets owned jointly with rights of survivorship or with designated beneficiaries pass by operation of law to those joint owners or beneficiaries. While this may be valuable for some purposes, like avoiding probate, this may leave no money for the administration of one’s estate following death. What if, for example, there are debts or professionals or a funeral to be paid?
Many people expect that the beneficiaries will just work it out. In reality, however, it’s often not that simple. Some beneficiaries may not be forthright or cooperative. Some may be evasive. One beneficiary may lay out money, thinking they’ll be reimbursed by others, only to be stonewalled. Even if they’re family. Even if they’re siblings. Additionally, someone may need to take charge, but there may be disagreements over who that should be. An administrative hassle can arise.
It may not be wise, in some circumstances, to name certain persons as beneficiaries or to have a contingency. Say, for example, the named beneficiary of your account is a person with a disability – or a person who becomes disabled – and that person is receiving governmental benefits. Or say your spouse is the named beneficiary, but at the time of your death, your spouse is on Medicaid for long-term care. Inheriting the assets outright could jeopardize those benefits. Other issues can arise when designated beneficiaries are minors. In New York, a guardian may need to be appointed for the property of the minor, because a minor cannot personally receive property greater than $10,000.00.
It would be much more preferable if those assets are to be distributed to the trustee of a supplemental needs trust or underage beneficiary trust established for the benefit of the disabled person or the minor. Such trusts could be established under your Will if such a trust was necessary, and a properly customized beneficiary designation would designate the trustee of such trust as the contingent beneficiary of the account’s assets. The key, however, is that there must be some mechanism for these trusts to be created. A comprehensive Will should provide options that may not otherwise be available.
Finally, sometimes persons named as beneficiaries die first, or someone may forget about an account or think erroneously they’ve already designated beneficiaries. Without viable beneficiaries, those assets become part of the decedent’s estate that must go through either probate (with a Will) or administration (without a Will) in Court. If the decedent did not have a Will, those assets must be distributed pursuant to a hierarchy set forth by the laws of New York State. That hierarchy, however, may be quite different from the decedent’s wishes, which the decedent could have expressed in their Will.