An estate planning snafu
A Florida law changed, but no one bothered telling us...
Good morning,
Hope you have a safe and Happy 4th of July tomorrow!
Toward the end of last week’s email, I included a link to this Wall Street Journal article along with a reminder about the importance of regularly reviewing your beneficiary designations and keeping them up to date.
I also mentioned that I’m personally dealing with an unexpected beneficiary designation situation right now.
I’m helping Elizabeth and her sisters settle their Dad’s estate.
He passed away in July, 2023.
But long before his final days, his 3 daughters and their Mom, took steps to avoid having to deal with Florida probate after his death.
Elizabeth’s Mom & Dad divorced in the early 2000s. They remained friends.
We reviewed and updated beneficiaries on all his accounts.
We added one of Elizabeth’s sisters to his bank account.
Elizabeth was added to his primary credit card account.
His ex-wife was named his power of attorney for financial and health matters.
It was terribly sad when he died, but we were glad that we put in the effort to clean up his assets and beneficiary designations ahead of time.
None of us wanted to deal with probate in Florida.
My father-in-law, John, wasn’t a multi-millionaire, but he lived a comfortable life in Florida.
Among other things, he owned 2 life insurance policies.
My mother-in-law, his ex-wife, was named as the sole beneficiary on each of the policies.
They both agreed at the time of their divorce to leave their financial assets to each other.
But thanks to a 2012 law that was passed in the state of Florida, his ex-spouse couldn’t inherit the life insurance policies even though she was named as the sole beneficiary for each.
Yeah, we were scratching our heads too…
Click here to read the highlights of the 2012 law.
The summary:
If a former spouse is listed as a beneficiary of a life insurance policy, that spouse is voided as a beneficiary after a divorce pursuant to Florida Law.
We later found out that John - the policy owner - could have “reconfirmed” that he wanted his ex-wife to be his beneficiary after their divorce, and that would have apparently addressed this.
However, since none of us - John, his ex-wife, Elizabeth, or her sisters - were notified about this law change we thought everything would flow as we had set it up.
Because John had his desired beneficiary listed on his life insurance.
And get this… for the last couple of years of his life, his ex-wife took over the administration and payment of these policies to make sure they didn’t lapse.
So, what happened?
Thankfully, one of the 2 policies paid out the benefits directly to the beneficiary listed on the policy. The policy owner’s ex-wife. Elizabeth’s Mom.
The other, larger policy… they haven’t been so accommodating.
Elizabeth has talked with them. My mother-in-law has spoken with them. And I’ve spoken with them a couple of times.
They’ve been very friendly and empathetic, but they absolutely will not budge on this issue.
And they have Florida law backing them up.
So, after our collective effort to avoid having to deal with probate of my father-in-law’s estate, here we are.
Literally dealing with the Pinellas County, Florida, probate court.
Thankfully, Florida offers something called “summary administration.”
It’s a simplified probate process to deal with smaller, simpler estates.
And since we successfully got everything else out of his estate through beneficiary designations, we only have to probate this one remaining life insurance policy.
Just a couple of nights ago, after emailing forms back and forth with her sisters and getting things signed and notarized and organized, Elizabeth and I uploaded what we hope are all the necessary documents to the Pinellas County online probate court system.
And we paid the summary administration court fee. It was $345.
Now we wait.
And hope they tell us we got everything submitted accurately. 🤞
We’ve asked that they split the proceeds of this one remaining life insurance policy equally between Elizabeth and her 2 sisters.
And once that’s done, they’ll each turn around and give their portion of the policy to their Mom.
Minus the court fees we paid. 😉
Because of the dollar amounts involved and how gift taxes work, they can each give the policy proceeds to their Mom without any tax impact for anyone involved.
So even though we paid close attention to beneficiary designations and took other steps to streamline my father-in-law’s estate, we still got an unpleasant surprise.
And found ourselves in a bit of an estate planning snafu.
Thanks a lot, Florida! 🤬
Best laid plans and all…
Despite all our best efforts, my father-in-law died without a last will and testament.
Perhaps if we’d been successful getting that in place with the help of a local, Florida attorney, they would have highlighted the fact that he needed to reconfirm his ex-wife as his life insurance policy beneficiary.
But since we believed we’d gotten everything out of his estate and would avoid probate, him dying intestate (without a Will) shouldn’t have been a problem.
Ultimately, while a bit of a headache, we’ll get this sorted out and the funds will eventually get to my mother-in-law which was everyone’s intention, including my father-in-law’s, from the start.
So please, please, please make sure you have an up-to-date estate plan in place that reflects your wishes.
You might have a Will. You might also have a trust.
But however your estate plan is setup, make sure your beneficiary designations are accurate.
Especially after a divorce.
Because beneficiary designations supersede your estate planning documents. Including your Will.
Enjoy your Independence Day celebrations tomorrow!
And if you’d like to discuss your financial independence day planning, just let me know…
Links & Things
Jonathan Clements is a widely read and much loved journalist who has long championed financial literacy.
More than once I’ve linked to articles from his Humble Dollar website and have followed his writing for years.
I was sad to read his mid-June article:
Please click that link☝️ and give it a read.
In the face of some unimaginable news, he once again shares some timeless advice and important reminders.
Thoughts? Suggestions? Feedback? Critiques?
Hit reply or leave a comment and share your thoughts…
Until next Wednesday,
Russ