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Why Simply Designating Beneficiaries May Not Work

We often hear from clients and other professionals that the simplest way to do estate planning is to simply name beneficiaries on all policies and accounts. This is often done because it is easy to simply name a person and to avoid probate.  However, there are many pitfalls of this very “easy” planning.  

Jason-briscoe-152940-unsplashDebtor-creditor law says that whatever a person has outright and unrestricted access to an asset, so do their creditors. When a beneficiary receives money outright from a loved one, the money is now susceptible to what we refer to as their “creditors and predators”.  

As for creditors, we had a client who received an inheritance through a beneficiary designation and the minute that she received the money she immediately became disqualified for the public benefits that she was receiving which paid for her care in a nursing home. We had another client who received money outright through a beneficiary designation, and was in a car accident through no fault of his own – he hit black ice – and ultimately had a judgment against him, and the money he inherited was taken.

As for predators, as much as we do not want to think the possibility (and for most of us it will never become an issue), sometimes family members take advantage of a family member who receives an inheritance by convincing that person to give them some or all of the inherited money. Sometimes, the person who inherits gives some or all of it away to family members, without thinking about the consequences, or the effects such gifts may have, if he or she needs funds in the future for his, her, or a spouse’s care.

Estate planning is more complex than just doing something because it is easy. In both of the above cases, there were very simple ways the money could have been protected for those family members from their creditors and predators at very little cost and complication, and it would have avoided a major catastrophe.

It is essential to talk to an estate planning attorney about ways to insure that those assets are protected from “creditors and predators”. Remember, sometimes easy just isn’t good enough.  

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