The Importance of Beneficiary Designations

Most people associate estate planning with creating wills or trusts to dispose of personal property, real estate holdings, and bank account balances. However, in order to prevent a will or trust from being contested, testators and trustors must also be sure to designate beneficiaries who will collect insurance, pensions, and retirement benefits. Failing to take these steps can have serious consequences. For instance, a person who designates his or her spouse as the beneficiary of a pension, but later obtains a divorce, must formally change the designation. Otherwise, the decedent’s ex-spouse would receive the benefits against the pensioner’s wishes. Alternatively, the decedent’s family members could contest the designation, leading to a prolonged and expensive legal battle. To help ensure that all of your estate planning documents are up-to-date and so avoid a dispute, you should speak with an experienced contested estates attorney who can assist you.

Designating a Beneficiary

Even when testators do not wish to officially name a beneficiary, they can designate their estate to receive insurance proceeds. In these situations, the distribution will be determined by the person’s will or if there is no will, by Illinois intestacy laws. It is also possible to name a living trust as a beneficiary by including:

  • The specific name of the trust;
  • The date the trust was created;
  • The name of the trustee; and
  • The trustee’s address.

Alternatively, testators can choose to designate a testamentary trust as a beneficiary. These types of trusts are not created until the trustor has passed away and his or her will’s preconditions are met. Once the will has been probated, the death benefits will be paid to the trust.

Consequences of Failing to Name a Beneficiary

When a person fails to a name a beneficiary for an insurance policy, pension, or retirement plan, the benefits will be paid according to Illinois’ intestacy laws. Under these laws, the benefits will first be paid to the decedent’s lawful spouse. However, if the decedent is not survived by a spouse, the benefits will go to:

  • Any natural or adopted children in equal shares;
  • The decedent’s parents in equal shares; or
  • The decedent’s siblings in equal shares.

If a decedent is not survived by any of these individuals, the representative of his or her estate will receive the proceeds. Even when this process is acceptable to a testator, he or she should be aware that by failing to officially designate a beneficiary, he or she risks a substantial settlement delay.

To help avoid a contested estate, testators should also be sure to name an alternate beneficiary who can step in if the primary beneficiary passes away before the testator. This will also cover situations where the primary beneficiary declines to accept the benefit.

Contact an Experienced Contested Estates Attorney Today

Generally, wills do not affect who receives benefits from policies or accounts with beneficiary designations, such as insurance policies and 401(k) plans. For this reason, it is critical for those with retirement benefits, pensions, or insurance policies to designate a beneficiary and update previous designations. Failing to take this step could result in a contested estate. To speak with an experienced contested estates attorney, please contact Orlowsky & Wilson, Ltd. Attorneys at Law by calling 847-325-5559 today.

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