A recent unpublished probate case, In re Maynard, deals with the issue of failing to identify beneficiaries when using non-probate assets.
A non-probate asset is defined as a financial or legal instrument that designates a beneficiary as part of its legal function. By doing so, the instrument passes outside of probate. Some common examples of potential non-probate assets are:
- Retirement accounts, such as IRA’s and 401K’s;
- Insurance policies;
- Beneficiary deeds for real property;
- Real estate deeds that are held joint tenants with right of survivorship; and
- Stock options.
Under these types of instruments, the proper designation of a beneficiary typically bypasses probate. Naming a spouse first, followed by naming an established trust as a secondary or alternate beneficiary, may be an estate-planning scenario for a married couple. Non-probate transfers have certain benefits and potential disadvantages.
It is important that you discuss all of the implications with your estate planning attorney.
In the case of Maynard, this scenario went awry because the trust left out key beneficiary language. According to the facts of the case, Mr. and Mrs. Maynard created a charitable remainder trust many years before the couple’s demise. A charitable remainder trust offers an estate planning option for those individuals wishing to honor their commitment to philanthropy or to recognize particular charitable organizations. It is a simple and relatively straightforward resource, and one that a trusted Scottsdale estate-planning attorney can discuss with you in more detail.
In the case of the Maynards, their initial planning used both non-probate assets (namely an IRA around which the controversy surrounds itself) and a charitable remainder trust to accomplish their goals. In the IRA, the Maynards designated the beneficiary as “The charitable organizations as called out in the Fenton Lee Maynard Survivors Trust UAD 6-1-2005.” But, unfortunately, there was no such trust. Thus, the beneficiary designation in the IRA was ambiguous. The Court, therefore, directed that it was proper to consider the Maynards’ intent based upon extrinsic evidence to identify the correct beneficiary of the IRA.
The purpose of using a trust for many families includes the benefits of probate avoidance. The same benefit can apply to non-probate assets. To see those benefits, both tools requires follow-through, diligence and accuracy.
By properly funding a trust and by naming designated beneficiaries, families can avoid winding up in probate court over ambiguous terms. Non-probate transfers may have disadvantages or create other problems, such as exposing the beneficiary’s assets to creditor claims.
Seek an experienced Scottsdale trust attorney to discuss your estate planning goals today.
