Beneficiary challenge a designation percent

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PoemMan
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Beneficiary challenge a designation percent

Post by PoemMan »

While “interviewing” estate lawyers for their services, one person suggested that it’s possible a contingent beneficiary could challenge the beneficiary designation percentage(s). This seemed quite unlikely to me, given that firms such as Fidelity and Vanguard would strictly follow the account holder’s established beneficiary assignments.

Has anyone had this type of situation, and if so how was it resolved?

Thank you,
PoemMan
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bsteiner
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Re: Beneficiary challenge a designation percent

Post by bsteiner »

It’s like challenging a Will. Just as a person adversely affected by a Will can contest it based on fraud, forgery, lack of capacity or undue influence, a person adversely affected by a beneficiary designation may contest it based on fraud, forgery, lack of capacity or undue influence.

I was involved in an estate where the decedent’s accounts were all either joint or had beneficiaries (which of course is generally not a good idea for taxable accounts (assets other than life insurance and retirement benefits)). At some point he no longer had capacity. The ones he signed while he had capacity were valid but the ones he signed when he no longer had capacity were not valid.
Joey Jo Jo Jr
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Re: Beneficiary challenge a designation percent

Post by Joey Jo Jo Jr »

Depends on the situation. A POA agent changing the designation is a fairly common scenario. I had a recent case where a second husband changed the wife’s IRA designation to himself online (home IPS address) while she was in the hospital on her deathbed.
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Elric
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Re: Beneficiary challenge a designation percent

Post by Elric »

bsteiner wrote: Fri Feb 09, 2024 9:35 pm I was involved in an estate where the decedent’s accounts were all either joint or had beneficiaries (which of course is generally not a good idea for taxable accounts (assets other than life insurance and retirement benefits)).
Not to sidetrack the discussion, but why is designating a beneficiary not a good idea for taxable investment accounts?
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mhalley
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Re: Beneficiary challenge a designation percent

Post by mhalley »

There are only a few senerios where not designating a beneficiary on ANY type of account is the better alternative.
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CloseEnough
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Re: Beneficiary challenge a designation percent

Post by CloseEnough »

Elric wrote: Fri Feb 09, 2024 10:21 pm
bsteiner wrote: Fri Feb 09, 2024 9:35 pm I was involved in an estate where the decedent’s accounts were all either joint or had beneficiaries (which of course is generally not a good idea for taxable accounts (assets other than life insurance and retirement benefits)).
Not to sidetrack the discussion, but why is designating a beneficiary not a good idea for taxable investment accounts?
Using TOD on taxable accounts can be a good idea as long as you are aware of potential pitfalls, which in many cases can be easily managed. It all depends on the specific facts and circumstances of the decedent's assets and plan for distribution to heirs. You can do a search on this forum and see pros and cons. Many people have used TOD on taxable accounts with no problems and quicker, easier transfer of assets to beneficiaries. For example, there is a recent thread by one of the site administrators (LadyGeek) regarding the process at Fidelity. I don't think that case fell into the category "of course it is not a good idea". Or see mhalley post just after yours.
bsteiner
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Re: Beneficiary challenge a designation percent

Post by bsteiner »

Joey Jo Jo Jr wrote: Fri Feb 09, 2024 10:11 pm Depends on the situation. A POA agent changing the designation is a fairly common scenario. I had a recent case where a second husband changed the wife’s IRA designation to himself online (home IPS address) while she was in the hospital on her deathbed.
Now that it's often possible to change beneficiary designations online, I think we'll see more litigation over beneficiary designations, in particular whether the IRA owner made the change or whether someone else was able to log on as the IRA owner and make the change.
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Re: Beneficiary challenge a designation percent

Post by bsteiner »

Elric wrote: Fri Feb 09, 2024 10:21 pm
bsteiner wrote: Fri Feb 09, 2024 9:35 pm I was involved in an estate where the decedent’s accounts were all either joint or had beneficiaries (which of course is generally not a good idea for taxable accounts (assets other than life insurance and retirement benefits)).
Not to sidetrack the discussion, but why is designating a beneficiary not a good idea for taxable investment accounts?
It's piecemeal (asset by asset) planning.

You have to make sure the beneficiary designations are consistent with your estate plan.

You have to update the beneficiary designations each time you change your estate plan.

It makes it harder to provide for beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances from their creditors and spouses, and Medicaid.

It makes it harder to provide for contingencies such as a beneficiary predeceasing you.

It results in chaos if it leaves the estate without enough money to pay debts, taxes, expenses and preresiduary bequests and one of the TOD beneficiaries balks at contributing his/her share.

It results in additional litigation if there's a question as to capacity or undue influence and the designations were signed on different dates, since the decedent could have had capacity when he/she signed the earlier ones but not when he/she signed the later ones. We had a contested estate where that was one of the issues.

We've had several estates where well-designed estate plans were defeated by probably unintended TOD designations.

This has become more of a problem in recent years now that TOD is allowed for brokerage and mutual fund accounts, especially now that many brokers push them. At one time it was limited to bank accounts.
CloseEnough
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Re: Beneficiary challenge a designation percent

Post by CloseEnough »

bsteiner wrote: Sat Feb 10, 2024 7:57 am
Elric wrote: Fri Feb 09, 2024 10:21 pm
bsteiner wrote: Fri Feb 09, 2024 9:35 pm I was involved in an estate where the decedent’s accounts were all either joint or had beneficiaries (which of course is generally not a good idea for taxable accounts (assets other than life insurance and retirement benefits)).
Not to sidetrack the discussion, but why is designating a beneficiary not a good idea for taxable investment accounts?
It's piecemeal (asset by asset) planning. It is not piecemeal if all the assets are financial accounts and have TOD designated

You have to make sure the beneficiary designations are consistent with your estate plan. Same comment, if all assets are financial accounts with TOD beneficiary designations it IS the estate plan. And, I would venture to guess that it is often the case for people late in life living in CCRC or nursing homes that their only assets are financial accounts - no real estate, no car, very little tangible personal assets.

You have to update the beneficiary designations each time you change your estate plan.True and easy to do

It makes it harder to provide for beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances from their creditors and spouses, and Medicaid.Most people don't need to be concerned with estate tax given the thresholds and many are not concerned with protection from creditors. Trusts are often more complicated than needed, unless there is a specific reason, such as a state estate tax planning concern. If trust establishment is part of the plan, then yes.

It makes it harder to provide for contingencies such as a beneficiary predeceasing you.Easily handled, just need to be aware of it

It results in chaos if it leaves the estate without enough money to pay debts, taxes, expenses and preresiduary bequests and one of the TOD beneficiaries balks at contributing his/her share.Easily handled with a small account outside the beneficiary designations, in control of the executor, or in friendly family situations. I often hear this, and wonder, what debts, taxes are we talking about? They may be quite small.

It results in additional litigation if there's a question as to capacity or undue influence and the designations were signed on different dates, since the decedent could have had capacity when he/she signed the earlier ones but not when he/she signed the later ones. We had a contested estate where that was one of the issues.Of course you can cite examples. Have you looked at the number of TOD beneficiary designation transfers that happen without any problems? Litigation can happen with a will, with any estate distribution so it really is not "additional"

We've had several estates where well-designed estate plans were defeated by probably unintended TOD designations.Of course you can point to examples where there were problems, as there may be with a will. Again, have you considered the number of transfers under TOD that do not create any problems?

This has become more of a problem in recent years now that TOD is allowed for brokerage and mutual fund accounts, especially now that many brokers push them. At one time it was limited to bank accounts.More of a problem? What data is there to support this, comparing the number of problem situations to the number of TOD transfers that happen without problems? And showing that it was use of TOD that caused the problem and that there would not have been a problem anyway had a will/trust been used?
See above. I don't believe a blanket statement that TOD beneficiaries for taxable accounts are "generally not a good idea" is accurate. It just depends on the facts and circumstances for the specific people involved.
stan1
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Re: Beneficiary challenge a designation percent

Post by stan1 »

bsteiner wrote: Sat Feb 10, 2024 7:49 am
Joey Jo Jo Jr wrote: Fri Feb 09, 2024 10:11 pm Depends on the situation. A POA agent changing the designation is a fairly common scenario. I had a recent case where a second husband changed the wife’s IRA designation to himself online (home IPS address) while she was in the hospital on her deathbed.
Now that it's often possible to change beneficiary designations online, I think we'll see more litigation over beneficiary designations, in particular whether the IRA owner made the change or whether someone else was able to log on as the IRA owner and make the change.
I am aware of a situation where the POA and POD got confused, and the POD was changed to be the same as the POA. The POA ended up as the sole POD beneficiary. The heir that was the POA did the right thing by the other person who should have been 50/50 on the POD in this case, and the account value was not of sufficient size to be a major issue. There are opportunities for administrative errors like this even when well intentioned people are involved but they don't fully understand the complexities of all this stuff. Bogleheads are geeky about all these types of things but ordinary smart people who don't laser focus on it can and do make mistakes.
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PoemMan
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Re: Beneficiary challenge a designation percent

Post by PoemMan »

Thank you all for the responses and discussion.

bsteiner’s list of fraud, forgery, lack of capacity or undue influence were my expected response, and the other discussion identified additional areas to make sure there is adequate planning/foresight to the extent possible.

This information along with LadyGeek’s reference to info in viewtopic.php?t=379848 (Finding out your Power of Attorney is useless) is very helpful.

Thank you,
PoemMan
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popoki
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Re: Beneficiary challenge a designation percent

Post by popoki »

Why is this always recommended: "to protect their inheritances from their creditors"?

If people owe a debt, shouldn't it be paid, even if with inheritance?
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Re: Beneficiary challenge a designation percent

Post by bsteiner »

popoki wrote: Sat Feb 10, 2024 2:58 pm Why is this always recommended: "to protect their inheritances from their creditors"?

If people owe a debt, shouldn't it be paid, even if with inheritance?
If you inherit money, it's generallyh subject to your creditors.

But if someone leaves money in a trust of which you're a discretionary beneficiary, you have no entitlement to anything. Your creditors can't have greater rights than you have. So your creditors can't enforce their claim against the trust.
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Re: Beneficiary challenge a designation percent

Post by popoki »

bsteiner wrote: Sat Feb 10, 2024 3:00 pm
popoki wrote: Sat Feb 10, 2024 2:58 pm Why is this always recommended: "to protect their inheritances from their creditors"?

If people owe a debt, shouldn't it be paid, even if with inheritance?
If you inherit money, it's generallyh subject to your creditors.

But if someone leaves money in a trust of which you're a discretionary beneficiary, you have no entitlement to anything. Your creditors can't have greater rights than you have. So your creditors can't enforce their claim against the trust.
Shouldn't the creditors get paid even if via the trust? I guess I'm just not a debt dodger.
CloseEnough
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Re: Beneficiary challenge a designation percent

Post by CloseEnough »

popoki wrote: Sat Feb 10, 2024 3:02 pm
bsteiner wrote: Sat Feb 10, 2024 3:00 pm
popoki wrote: Sat Feb 10, 2024 2:58 pm Why is this always recommended: "to protect their inheritances from their creditors"?

If people owe a debt, shouldn't it be paid, even if with inheritance?
If you inherit money, it's generallyh subject to your creditors.

But if someone leaves money in a trust of which you're a discretionary beneficiary, you have no entitlement to anything. Your creditors can't have greater rights than you have. So your creditors can't enforce their claim against the trust.
Shouldn't the creditors get paid even if via the trust? I guess I'm just not a debt dodger.
I agree. Generally speaking, I would not be using a trust to avoid paying legitimate debts. Perhaps the idea is to protect substantial inheritances from creditor claims related to litigation, as distinguished from ordinary debts.
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Re: Beneficiary challenge a designation percent

Post by toddthebod »

CloseEnough wrote: Sun Feb 11, 2024 7:25 am
popoki wrote: Sat Feb 10, 2024 3:02 pm
bsteiner wrote: Sat Feb 10, 2024 3:00 pm
popoki wrote: Sat Feb 10, 2024 2:58 pm Why is this always recommended: "to protect their inheritances from their creditors"?

If people owe a debt, shouldn't it be paid, even if with inheritance?
If you inherit money, it's generallyh subject to your creditors.

But if someone leaves money in a trust of which you're a discretionary beneficiary, you have no entitlement to anything. Your creditors can't have greater rights than you have. So your creditors can't enforce their claim against the trust.
Shouldn't the creditors get paid even if via the trust? I guess I'm just not a debt dodger.
I agree. Generally speaking, I would not be using a trust to avoid paying legitimate debts. Perhaps the idea is to protect substantial inheritances from creditor claims related to litigation, as distinguished from ordinary debts.
Wealthy people are concerned with being sued, not with paying their credit card bill.
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CloseEnough
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Re: Beneficiary challenge a designation percent

Post by CloseEnough »

toddthebod wrote: Sun Feb 11, 2024 7:29 am
CloseEnough wrote: Sun Feb 11, 2024 7:25 am
popoki wrote: Sat Feb 10, 2024 3:02 pm
bsteiner wrote: Sat Feb 10, 2024 3:00 pm
popoki wrote: Sat Feb 10, 2024 2:58 pm Why is this always recommended: "to protect their inheritances from their creditors"?

If people owe a debt, shouldn't it be paid, even if with inheritance?
If you inherit money, it's generallyh subject to your creditors.

But if someone leaves money in a trust of which you're a discretionary beneficiary, you have no entitlement to anything. Your creditors can't have greater rights than you have. So your creditors can't enforce their claim against the trust.
Shouldn't the creditors get paid even if via the trust? I guess I'm just not a debt dodger.
I agree. Generally speaking, I would not be using a trust to avoid paying legitimate debts. Perhaps the idea is to protect substantial inheritances from creditor claims related to litigation, as distinguished from ordinary debts.
Wealthy people are concerned with being sued, not with paying their credit card bill.
Exactly, although I am not concerned about getting sued. And, that is what umbrella insurance is for.
toddthebod
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Re: Beneficiary challenge a designation percent

Post by toddthebod »

CloseEnough wrote: Sun Feb 11, 2024 7:58 am
toddthebod wrote: Sun Feb 11, 2024 7:29 am
CloseEnough wrote: Sun Feb 11, 2024 7:25 am
popoki wrote: Sat Feb 10, 2024 3:02 pm
bsteiner wrote: Sat Feb 10, 2024 3:00 pm

If you inherit money, it's generallyh subject to your creditors.

But if someone leaves money in a trust of which you're a discretionary beneficiary, you have no entitlement to anything. Your creditors can't have greater rights than you have. So your creditors can't enforce their claim against the trust.
Shouldn't the creditors get paid even if via the trust? I guess I'm just not a debt dodger.
I agree. Generally speaking, I would not be using a trust to avoid paying legitimate debts. Perhaps the idea is to protect substantial inheritances from creditor claims related to litigation, as distinguished from ordinary debts.
Wealthy people are concerned with being sued, not with paying their credit card bill.
Exactly, although I am not concerned about getting sued. And, that is what umbrella insurance is for.
The trust is not for you, it's for your kids.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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alpenglow
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Re: Beneficiary challenge a designation percent

Post by alpenglow »

Joey Jo Jo Jr wrote: Fri Feb 09, 2024 10:11 pm Depends on the situation. A POA agent changing the designation is a fairly common scenario. I had a recent case where a second husband changed the wife’s IRA designation to himself online (home IPS address) while she was in the hospital on her deathbed.
How did that play out? Seems like obvious fraud to me.
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Re: Beneficiary challenge a designation percent

Post by alpenglow »

CloseEnough wrote: Sat Feb 10, 2024 8:28 am It results in chaos if it leaves the estate without enough money to pay debts, taxes, expenses and preresiduary bequests and one of the TOD beneficiaries balks at contributing his/her share.Easily handled with a small account outside the beneficiary designations, in control of the executor, or in friendly family situations. I often hear this, and wonder, what debts, taxes are we talking about? They may be quite small.

See above. I don't believe a blanket statement that TOD beneficiaries for taxable accounts are "generally not a good idea" is accurate. It just depends on the facts and circumstances for the specific people involved.
In certain areas, property taxes can be quite high. A relative of mine is paying about $23k in property taxes (and that is low for her neighborhood - her neighbor pays about $250k/year!). If the estate takes a long time to be settled, that could really add up.
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Re: Beneficiary challenge a designation percent

Post by tibbitts »

stan1 wrote: Sat Feb 10, 2024 8:28 am I am aware of a situation where the POA and POD got confused, and the POD was changed to be the same as the POA. The POA ended up as the sole POD beneficiary. The heir that was the POA did the right thing by the other person who should have been 50/50 on the POD in this case, and the account value was not of sufficient size to be a major issue. There are opportunities for administrative errors like this even when well intentioned people are involved but they don't fully understand the complexities of all this stuff. Bogleheads are geeky about all these types of things but ordinary smart people who don't laser focus on it can and do make mistakes.
I was unaware that the PoA and PoD weren't usually (wild guess in 80% of cases?) the same person(s)?
stan1
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Re: Beneficiary challenge a designation percent

Post by stan1 »

tibbitts wrote: Sun Feb 11, 2024 9:24 am
stan1 wrote: Sat Feb 10, 2024 8:28 am I am aware of a situation where the POA and POD got confused, and the POD was changed to be the same as the POA. The POA ended up as the sole POD beneficiary. The heir that was the POA did the right thing by the other person who should have been 50/50 on the POD in this case, and the account value was not of sufficient size to be a major issue. There are opportunities for administrative errors like this even when well intentioned people are involved but they don't fully understand the complexities of all this stuff. Bogleheads are geeky about all these types of things but ordinary smart people who don't laser focus on it can and do make mistakes.
I was unaware that the PoA and PoD weren't usually (wild guess in 80% of cases?) the same person(s)?
One son was the POA (using the bank's form), the two sons should have been on the POD splitting the account 50/50. It was set up that way at the time the account was opened, but someone accidently filled out a new POD designation when they were trying to fill out a new POA designation. This bank required a new POA be filled out every five years. Some of us thrive with this complexity but it really is a possible source of errors even for smart people.
Joey Jo Jo Jr
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Re: Beneficiary challenge a designation percent

Post by Joey Jo Jo Jr »

alpenglow wrote: Sun Feb 11, 2024 8:54 am
Joey Jo Jo Jr wrote: Fri Feb 09, 2024 10:11 pm Depends on the situation. A POA agent changing the designation is a fairly common scenario. I had a recent case where a second husband changed the wife’s IRA designation to himself online (home IPS address) while she was in the hospital on her deathbed.
How did that play out? Seems like obvious fraud to me.
Was settled to client’s satisfaction.
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