Steve Novak: Yeah. So this is, um, you know, failure to complete funding and update insurance plans and, and similar to mistake one, this is, this is a situation where, you know, if you’ve gone through the trouble of creating a state plan, we want to make sure you actually retain the benefits of it. Um, funding and things like that, you know, is, is more common when you’re dealing with trusts. Um, and vehicles of that nature. You know, we have clients you can create trusts and, you know, and anybody who creates a trust is, you know, one of the things that, you know, if you’re not doing it with the assistance of a good estate planning attorney is you don’t realize that it’s, that you need to fund it. There’s an extra step that you need to take to fund your living trust. Um, because otherwise, essentially, you know, when you pass away and your trust is in funded, then you know, you may need to go to probate to do allow the probate court to do the funding for you.
Steve Novak: Um, and so it’s, it’s something that you have to do during your life. And it basically involves, um, transferring assets that you own individually into the name of your living trust. Um, and, and essentially, you know, a lot of times trusts will have an exhibit a on the back. And I’ve seen this in a few kind of homegrown trusts, if you will, trust that people create for themselves is a schedule a is just a list of all, all the trust assets. And a person feels that if, as long as they list all their assets in that exhibit a then now their trust is funded. The problem is, is that that exhibit a is, is basically useless. Um, the reason it’s there is because of a very technical re uh, requirement where in order to have a valid trust, you know, you need an existing trust estate or existing trust assets.
Steve Novak: And so usually you’ll see like $10 up there on that exhibit. A and that’s basically, it’s just a, it just fulfills a technical requirements, um, that, you know, just to make sure that your trust is valid. So if you go ahead and add more assets to that list, it doesn’t automatically fund your trust for you. You actually need to go to the bank and retitle your accounts. You need to name your trust as beneficiary. Um, you know, for things, you know, if you, you know, depending on your plan for things such as IRAs or insurance, um, and that kinda ties into, you know, making sure that your insurance plans are up to date, making sure that you’re, you know, the beneficiaries of those plans are, you know, are actually, you know, the proper entity or the proper person in order to carry out your intent.
Steve Novak: Um, we’ve had clients who basically, you know, they’re, they’ve named someone, let’s say they’ve named their sister as, as trustee, um, you know, or in their executor. And so they, you know, they know that they want their sister to carry out their wishes. And so they’ll actually named their sister as beneficiaries of their insurance plans. Um, however, you know, when doing that, what they don’t realize is essentially that’s just giving your sister the proceeds of those plans. Um, you know, instead, you know, you have to work with your attorney, work with your insurance person to basically come up with a proper beneficiary designation, because, you know, if sister just gets a check from the insurance company, it’s going to be in her name, she can do whatever she wants with it. Maybe she’ll, you know, give it to your children in accordance with your wishes.
Steve Novak: Maybe she won’t, but according to the law, it’s, if she’s the name beneficiary, that money is hers. Um, and then, uh, you know, you’re kind of creating some problems, even if she is, you know, uh, you know, a trustworthy person and, and carries out your wishes and gives that money to your children. Now you run into tax problems for her because essentially she’s giving away money that she otherwise would own. So there might be gift tax consequences for your sister. Um, so it can be very, you know, it’s very important to basically make sure that your plan is a cohesive unit. And that plan includes, um, insurance, uh, beneficiaries. Um, you run into a similar situation with retirement accounts. You know, a lot of times those assets are transferred through beneficiary designations, and you just want to make sure that you’re, you know, and there’s a, there’s a lot of flexibility and all this type of stuff. Um, you just want to make sure that your plan is working together to complete your goals.
Mario Godoy: Yeah. I think one of the important things is to understand, you know, that the insurance plans that’s a contract, right? And so they’re going to, they’re going to pay out to whoever that beneficiary is, um, irrespective of what your estate plan wishes are, and that’s why he wants to team those up. And, and I think where I’ve seen this really blow up is when you know, that insurance plan, you know, was purchased at a time when someone had an ex spouse and, and now they have someone else, right. Or, or, you know, maybe they don’t, but that ex-spouse will now be the beneficiary of, of those funds. Uh, and so that’s why it’s important to even go back and revisit that insurance plan as well.
Steve Novak: Yeah. And there’s, you know, there’s laws that are in place that basically in the event of a divorce, you know, will automatically remove a spouse as a beneficiary from certain types of assets. But even if that’s the case, you know, you still then could wind up with no beneficiary, you know, which is probably not what you want. You know, the basically then the beneficiary, you know, the funds get paid either two years state, or then, you know, instead of the Illinois legislature, it’s now the insurance company, you know, doing their best guess some contracts have provisions that say if there’s no beneficiary, you know, pay it to these people that might not be what you want. So yeah, my Mara is absolutely correct. You know, you go through a life change such as a divorce or a marriage or something like that. You know, you absolutely want to, you know, want to go ahead and revisit those beneficiary designations.
