The 3-2-1 Problem

Setting up beneficiaries is a great way to avoid probate for many assets like life insurance, annuities, and retirement plans.

BUT, there is a serious problem that can happen.

Case 1:  The owner of the assets develops dementia and can’t change the beneficiaries anymore.  The secondary beneficiary passes first.  Then the primary beneficiary passes.  This can leave the asset exposed to probate.

Case 2: The owner, primary, and secondary beneficiary are in a care accident.  Think of the case where the son is taking mom and dad to the doctor for an appointment.  The secondary beneficiary (son) perishes immediately.  A few days later, the primary beneficiary (mom) perishes.  Then a few days later, the owner perishes.  Again, this leaves the assets exposed to probate.

The best way to beat this is to have a Revocable Living Trust as the last beneficiary in the chain, as a catch-all or safety net.  The Revocable Living Trust will have instructions in it to handle this case and keep the money out of probate and in the family.

PS:  I call it the 3-2-1 problem because there were 3, then 2, then 1…

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from DeWitt Law Firm, PLLC