Many people go to great lengths to make sure their Last Will and Testament, or their Revocable Living Trust, is set up just right so their heirs are protected and the inheritance is not squandered. For example, a couple with two minor children set up their Wills so that if the parents pass away, the parents' assets go into trust for the minor children, and a trustee is named, and the children can't access the assets on their own until they reach the age of 25. The Will is perfect.
What the parents fail to realize is that most of their wealth is in assets like 401(k) plans and life insurance policies. These assets are payable at death to the named beneficiaries, regardless of what the Will says. If the parents die with minor children, and the children are named as beneficiaries, the money will be paid to the court appointed legal guardian, and the minor's will have it thrown into their lap on their 18th birthday.
The solution? Make sure, as part of your estate plan, that your beneficiary designation documents are consistent with your other testamenary provisions. For example, some parents will name their spouse as their primary beneficiary of their life insurance and retirement accounts, and then name the trust for their children as the contingent beneficiary. The will avoid life insurance and retirement account proceeds being dumped into a child's lap. Done right, you can leave your children an inheritance that will benefit them for the rest of their lifetime.
Paul Rabalais
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