There is a running joke in our office (spurred on by Gary himself), when anytime there is a question regarding the terms of a document, the answer is “read the document”.
Estate planning at its core is very simple…create goals, reduce them to writing and make sure that writing is in a format acceptable under the laws of your home jurisdiction. Despite all the advances in technology, Estate planning lawyers single-handedly keep paper companies in business. Biologists deal in science, Accountants deal in numbers and Estate planners deal in words and paper. In many instances, if it’s not written, it doesn’t exist!
Each and every one of our clients that completes the signing of their estate plan will be given a specific memorandum that outlines the implementation of their estate and specifically, how their assets are to be titled in light of the estate planning measures put in place. We provide this information in order to involve our clients in a proactive manner. By having our clients take an active role in their estate plan administration, we believe that our clients understand the estate planning measures they have put in place. What becomes clear is that there is more to an estate plan then simply putting pen to paper.
When an individual passes away, the words in their estate plan govern the distribution of their assets that are both individually owned (without beneficiary designations) and those assets owned by a Trust vehicle. However, if clients do not take the proper steps to title assets in conjunction with their estate plan, their estate plan will not come to fruition. This is clearly shown in a recent Seventh Circuit Opinion in Minnesota Life Insurance Co. v. Kagan. In this case, Mr. Kagan died survived by his wife and three children (from a prior marriage). Prior to Mr. Kagan’s death, the decent had created a Will that provided a distribution of $100,000 and a grave site to his wife, the balance to be disposed of equally between his three children. Unfortunately for his wife, the majority of Mr. Kagan’s assets were non-probate assets with his three children designated as beneficiaries. This was problem one, the titling of the assets was inconsistent with Mr. Kagan’s stated estate plan. There were no estate funds to support the stated distributions under the Will. Thus, Mr. Kagan’s stated goals under his estate plan were not accomplished.
OH, BUT THERE’S MORE!
Mr. Kagan had one life insurance policy through his place of employment that did not have a listed beneficiary. Based upon the default rules of the life insurance company, the policy was payable to his wife. However, the pattern described above seems to suggest that after completion of his estate plan, Mr. Kagan made a concerted effort to change his estate plan though designating his children as the named beneficiaries of all of his assets. Evidence in this case was found that showed that Mr. Kagan completed a change of beneficiary form to name his three children beneficiaries of this policy about a year and a half before his death. This form was never submitted to the life insurance company. Without getting into the full details of the case, the Court held that Mr. Kagan did not strictly or substantially comply with the change of beneficiary rules because he did not “submit” the change form. Therefore, the Court held that the policy was payable to his wife.
It is clear from Mr. Kagan’s past actions that his goal was to designate his three children as beneficiaries of all of his non-probate assets. As I stated above, we provide a step by step outline for our clients on how they are supposed to designate beneficiaries in conjunction with our estate plan. However, if the proper steps in administration are not taken, this case shows that your estate planning goals will not come to fruition. Estate planning is like a puzzle, one missing piece will prevent completion of the end result. For Mr. Kagan, all he had to do was mail in his completed form which sat in his home for a year and a half. Failing to do so caused its payment to an unintended party. Two outcomes are learned, first is that estate planning is a step by step process that requires continued action once the correct documents are in place. Second, review your estate plan often to pick up any mistakes such as missed beneficiary designations. Once simple mistake can spell doom and gloom for your estate plan!
– Adam Abramowitz, Esq.