When the wrong beneficiary benefits


Procrastination is the art of keeping up with yesterday. – Don Marquis

John and Mike (fake names to respect my friends’ privacy) fell in love about 10 years ago and, to my eyes, were very much still in love when I helped them recently celebrate their 40th and 50th birthdays.  Mike was diagnosed with what seemed to be a beatable form of cancer about a year ago. He and John thought it was a good time to have a conversation about updating Mike’s old will and living trust, but they were in no hurry, as the prognosis was good for Mike. A few weeks later, Mike was gone, not from the cancer, but from a reaction to the chemotherapy. Now John, while still mourning the loss of his soul mate, is about to lose the home he shared with his partner and see his credit score drop. Why, you ask?

They owned their home as tenants in common, a method of ownership that’s often used when each person in a relationship owns a different percentage of the house. Mike owned the larger share of this particular home, and his trust still had his ex-partner listed as the beneficiary and successor trustee. In other words, the ex is in the queue to receive the trust assets, including Mike’s majority share of the house, and is also in charge of dispersing them. So now John is a temporary renter in his home of 10 years.  Since Mike is now deceased, his name was removed from the deed, which leaves John on the hook for the entire mortgage on a house he no longer owns. Since the trust has assumed the responsibility to make the mortgage payments, but has failed to do so in a timely manner, John’s credit has now been harmed.

John’s story is all too common. A couple of quick edits to one document (the trust) would have changed everything.  As soon as you realize that you want a different person to inherit all or a portion of your assets, it’s crucial that you update the beneficiary info on all of your retirement accounts (401k, 403b, IRA, Roth, etc), as well as non-retirement accounts (living trust, transfer on death, payable on death, joint tenancy, community property, etc).  If you don’t have a living trust, I invite you to contact your financial advisor or estate attorney to see if that makes sense for you.

There is no room for the do-it-yourself approach with estate planning for same-sex couples, and I strongly encourage the LGBT community to work with someone who specializes in estate and tax planning for our community. Many of the current federal laws are gray when trying to address the constantly changing state laws around civil unions and domestic partnerships.