Do not make a $60,000 mistake

Inheritance law is complicated. One of the primary reasons is because every State has its own law on the subject. Not knowing these laws can cost your heirs a pot full of money. Here’s just one example.

 

As a general rule insurance proceeds do not go through probate, the process usually involved when assets are passed from the deceased to heirs. Many types of insurance exist and many have names that might lead you to believe it was not insurance at all.

 

Ms. L. died with a will and it was clear she meant to leave each of six relatives $100,000.00 each. She had six variable annuity contracts, which may be treated like an insurance policy, of $100,000.00 each. The first problem was she failed to designate a beneficiary on any of the policies, therefore the proceeds had to go through probate. If the heirs were her children her wishes may have been protected, but she outlived all six and the six designated heirs were second cousins by marriage or further removed.

 

Ms. L. was a resident of Maryland which has a 10% inheritance tax on proceeds that pass to non immediate family. Sixty thousand dollars gone to the State.

 

To make matters worse the will had a residuary clause which means that all assets not covered specifically in the body of the will go to the residuary legatee. The body of the will said $100,000.00 each to six enumerated heirs, but did not give a source to where this money was coming from. The residuary clause said “… all the rest of my estate including all accounts… shall pass to…” a relative even further distant than the six to whom she had some ties to. That person received all $600,000.00 less the $60,000.00 in inheritance taxes.

 

Simply designating beneficiaries would have accomplished what Ms. L. most likely intended and the estate would have $60,000.00 extra.

 

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