Life Insurance: Change your Beneficiary Designations..or else

I have written about life insurance before.  In general, I'm not crazy about it, but for some folks it makes sense. I go to a lot of lunches and seminars were different products are presented, and while some are only good for the broker, lots of them offer some really compelling benefits. But I digress.

Where life insurance affects most of my clients is when someone did/did not make a beneficiary designation, or change one after their family situation changes.


Harry Husband and Wendy Wife have two (2) children. Wendy is Harry's beneficiary on their life insurance policy he has through work, and under his will. Their life is great. Until Harry finds out one of "his" children is actually Pete Postman's. Sadly, they get a divorce. Harry later remarries to Sally SecondWife, and passes away after a lovely retirement spent watching Hill Country sunsets, having never thought about or updating his estate planning.

What happens?

It depends, but probably a lawsuit.  If the life insurance policy was a private company administered policy, under Texas law (and lots of other places) the Texas  Family code will treat your ex-spouse as pre-deceasing you, so it would go to your backup beneficiary or just into your estate. Same rules apply for your will, and financial accounts that are not dependent upon ERISA.   Erisa says your beneficiary designation holds up, so if you have a 401k or similar retirement, you better change it. Also, there are a variety of policies that are governed by Federal law (namely, FEGLIA) that have strict rules, and require an update of your beneficiary instead of automatically updating it for you.

Ok, well that's not really fair, is it? How can my no-good ex-wife get something she isn't entitled to?


Your will is only part of the picture. For most, the bulk of your assets are going to be in the form of an IRA, 401k, bank account, insurance or other. You probably filled out a beneficiary designation when you set up the account. You likely forgot about it since then. If you have experienced a change in marital status or family composition, you have a task to check and update all your various accounts, or run the risk of your estate ending up where you did not intend it to be.

Efiling: Tips, Tricks, and Conspiracy, and a primer on creating (free-ish) Text-Searchable PDFS

Image result for efile texasI really don't like efiling.  I do not think I am alone. I laud the clerks and technicians who have spend countless hours getting trained, working out the bugs, and helping me when my document was not "text searchable" or "submitted as a secondary lead document, not an attachment."

For those of you who are not so inclined, Texas has gone to a mandatory, paperless "electronic filing" system commonly known as e-file, starting in the big counties in 2012 and now rolling through us smaller burgs.  It should be great: reduce paper, increase efficiency, seamless interface.  Except it is not any of those things, yet.

Paper Reduction:

I use as much, if not more paper than before. (Disclaimer, I am an avid recycler, lover of trees, and I majored in environmental science in college: I am all for anything that reduces waste). Sadly the legal business is a paper heavy business, and we essentially sell documents. So, it really doesn't help there. Clients want paper, not just an email attachment. Deeds still require paper, and electronic signatures are not ubiquitous yet.

I can, however, see some courts that are completely paperless (Collin County is pretty good) reducing their physical storage requirements, and only printing off final orders upon request. I'm ok with that, but if you don't store physical have to store it electronically. This should be great, if there was access to these public records. There is, but you have to pay for it.  It would cost my firm $180 annually, just for Collin County.

Increased Efficiency:

The most common response when I asked the clerks and other representatives about why we were required to E-File,  was "it will save you so much time."  Yes, in theory, it has saved me a trip or two to the local courthouse, and it is nice when filing in another county to not have to drive an hour down to the lovely Dallas County courthouse, pay for parking, etc.

Just like the advent of the computer word processor, less time doing the actual tasks required for lawyering should result in more efficiency, but the only person who gets the benefit there are the clients. As a member of society who has paid a lawyer, this is a good thing. As a lawyer who tries to get paid, this is time I would have normally billed a client for travel and filing, which is much more legitimate than "spent 2 hours trying to make pdf document small enough and text searchable, after getting filing rejected by E-file."  I don't think that is a fair cost to bill to a client. So, I eat the cost, bill less, and then I pay a $2 fee for a proposed order, an extra $25 for any filing over $25 pages, etc. I am not sure there are any actual savings at the end of the day, and there are additional costs, in addition to the filing fees I have paid.

Seamless Interface:

The state E-Filing website is bright and glowing. File with us! It will be great! Then it shows you 12 options to choose from, some free, most not. More costs. So, being the small firm I am and not wanting to pass costs on to my clients, I picked the free, state-sponsored e-filing system, . Review: its ok. The interface is not super-intuitive, but you can pick your way through it with practice. The problems come in that if you do not have adobe acrobat (or similar program).

Example: You have a pleading that has 100 pages, with exhibits and other stuff. Most were old pieces of paper you had to scan it. In olden times (last year), you file the paper at the counter. Today, FILING REJECTED. Why? Because you need to pay adobe $299.00 for at least the standard version of acrobat, to produce a pdf file that is text-searchable, has bookmarks, and is small enough to not exceed 35 mb. I thought this was supposed to be free?

Yes, there are cheaper competitors to adobe. Foxit is a decent one, but even that costs $89.00 without the upgrade protection. Who is supposed to pay for this additional cost, that I didn't need before E-Filing told me I did? I can't just bill it to the Penske file.

Yes, there are the pay-for E-Filing providers that claim to do this for you, but again, you have to PAY.

So, I set out to see if I could do this for free.


I work for a firm that is trying to adopt and adapt to new technology, but sometimes that is difficult to execute. I'm not that old, so I'm pretty tech savvy, but even some of this was a task for me. That said, the key here is producing a text-searchable PDF document.


Get your document, exhibits, etc., in PDF form. You can do this from word, wordperfect, or scan them in. There are also free pdf converters out there, and you can even create them from your smartphone. If you can't do this, stop reading now.


Compile your document: Some of the paid programs have the ability to move and cut and combine pdfs, in free land you need one like PDF FILL.  It is rather rudimentary, but it does the job.


Now in complete form, you need to have a "Text Searchable" pdf, which means a program has to run optical character recognition or OCR on it. Pretty cool technology (what google has used to digitize old texts and libraries) makes the documents word searchable, so I guess I see the point. To do this, you either have to have one of the paid pdf programs, OR after long searching I found this PDF-VIEWER program that provides a free OCR software.  This also allows you to add bookmarks. Just open your compiled pdf  in the program, hit the OCR button, wait till it finishes, add your bookmarks (if any), and hit save.


You might be already done, but if it is a large document, you could run the risk of being over the size limit. Again, the paid for programs have compression/size reduction features, but if you scanned in your documents they are likely going to take up a large amount of size. So, you need to shrink it. How? There are a couple good, free websites that do it for you. I tried both  small pdf and pdf compress, and pdf compress worked faster (shrink sorta got stuck, although it has solid reviews. Both seem great).  They both take a minute or two then automatically download the compressed document. Save it, and your are finally ready to E-file!


E-filing was mandatory in the courts of appeals and federal system for a while, so it was inevitably coming. However, with the mandate came all these new fees, programs, requirements, etc. Someone is getting paid, and I am paying them. My clients are paying additional fees. I understand that it costs money to run the judicial system and retain documents. That is why we pay taxes and filing fees, that all continue to increase. I do not know where these additional fees are going, or why it continues to get more and more expensive to do the simple acts necessary to be a lawyer. Someone maid money on this deal, and I wish I knew who it was.


I know, all lawyers are rich, quit yer belly-achin', I hear that. I wish it were true, but if this is a big problem then I'm pretty blessed. I am all for new technology, increasing efficiency, and definitely reduction of waste. E-filing should be all those things, but it has not started off without many a hitch. I will continue to educate myself, try new providers, and try to do so efficiently, I just hope the powers that be continue to try and promote a system with the people it affects in mind.

Post Script:

I do not know if those linked programs add malware or additional stuff to your computer. I assume they do, as they are free. I'm sure adobe acrobat is a great program (dear adobe, please send me a copy), I just am fighting it out of spite. I would love any comments or reviews of the other e-filing providers if you have any feedback. 

Do-It-Yourself Estate Planning

Prehistoric man, and this guy,  had to be do-it-yourself'ers by necessity (decent read at the link, does not advocate stealing from neighbors if you adopt the hermit lifestyle, even if it is innocuous and out of necessity.)

It started with fixing your own toilet, now you can do your own divorce, straighten your own teeth,  and thanks to the internet, you can do just about anything and cut out expensive professionals. Us expensive professionals now have to try and combat that in a variety of ways. I prefer honesty.

Fact No. 1: You Don't Need A Lawyer To Make A Will

All you need are a pen and paper, and in Texas, as long as you use some magic words (like who you want stuff to go to, and signing your name) it is legit.   The American Bar Association even will tell you how and what to do. Now, life will be easier for you if you do a fancy, witnessed and self-proved printed will, but lets keep it to the basics. You don't need a lawyer to make a will. That said, your family or loved ones will pay a lawyer more on the back end for your cheapness up front, but what do you care, you saved a couple bucks.

Fact No. 2: You Don't Need A Will

Who cares? You will be dead anyway. Problem with this is if you want certain stuff to go to certain people, then you don't have any say. Have kids you don't like or wanted to disinherit? Have a mistress you wanted to leave your Montana estate to? Out of luck. Also, unless you have no debt and only a homestead to leave (no back accounts, other assets less that $50k), your estate will have to pay an attorney ad litem, usually a fee of $400 or more, which is likely more or about the same you would have spent on a will from an attorney.

My go to saying is, "I COULD change my own oil...but I'd rather pay someone to do it right."

For any project, be it a leaky toilet or your estate planning, run the cost/benefit analysis of time, money, and headache and make the decision that is best for you. Whenever I do that, I figure out I am better off calling a plumber and going to the Jiffy Lube.

The dead hand: Controlling heirs through conditional bequests

When an inheritance or gift is based on a condition, this process is often referred to as the "dead hand."  The issue has been around for a long time:
 "What I am saying is that as long as the heir is a child, he is no different from a slave, although he owns the whole estate. 2 He is subject to guardians and trustees until the time set by his father."-Galations 4:1-2 NIV
It kind of makes sense, as it is often in a will, and you end up cursing the person for requiring you to: wait until age 30, not do drugs, keep gainful employment, OR be married by 6:05 PM on your 30th birthday. 

This is exactly the predicament Chris O'Donnell found himself in for 1999's critically acclaimed film, The Bachelor
After botching his proposal to girlfriend Anne (played by Texas' own Renee Zellweger, when she still looked like Renee Zellweger), O'Donnell has 24 hours to scour his past and find a bride or risk losing a $100 million inheritance. What can go wrong?

I actually saw this and it wasn't THAT bad, but it highlights a common concern that many people have: what will my heirs do with my money/stuff/business?

Some people don't care, they are dead. Others want to make sure that things are done right, which means their definition of right. Lets take a look at some sample restrictions, and see which will hold up legally. 


1. I leave my land to St. Bob of Cleveland Church, as long as the location is used as a church. 

This one is usually fine. If there have been instances where requirements that a bequest is based on practicing a certain religion are declared void, as are just about anything that would go against public policy. 

2. I leave my estate to my sons, as long as they marry within 7 years of my death Jewish girls  whose parents are both Jewish. 

Restraints on marriage, as in to not get married at all or marry someone of a particular race are often held to be invalid. However, courts have termed religious restrictions or certain time limits to be "partial" restrictions, and generally upheld. This exact scenario in the example was upheld in the case of Shapira v. Union National Bank. 

3. I leave my estate to my grandkids, in trust, with distributions totally at the discretion of Trustee, provided they do not do drugs and have gainful employment. 

This is a very common one, and as not doing drugs and having a job are not against public policy, they are upheld. But what about in a state that allows recreational marijuana? Be careful how your documents are drafted. 


Placing restrictions on gifts is nothing new. Sometimes it works, sometimes it doesn't. The success is usually based upon good family communication and structuring the restriction in a way that is in line with good public policy. 

Some say the golden rule is "he who has the gold, makes the rules." In the case of the dead hand, this is generally true. 

Spooky IRA Deadlines

You can't fight time. Don't try. 
We've talked before about the tax ramifications of halloween candy, but today I want to let you know if something much spookier: the October 31 deadline of notifying your inherited IRA custodian if a trust is a beneficiary. 

Don't lock the doors just yet, there is still time.

Per IRS publication 590:

Trust as beneficiary.   A trust cannot be a designated beneficiary even if it is a named beneficiary. However, the beneficiaries of a trust will be treated as having been designated beneficiaries for purposes of determining required minimum distributions after the owner’s death (or after the death of the owner’s surviving spouse described in Death of surviving spouse prior to date distributions begin , earlier) if all of the following are true:
  1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus.
  2. The trust is irrevocable or became, by its terms, irrevocable upon the owner's death.
  3. The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the owner's benefit are identifiable from the trust instrument.
  4. The trustee of the trust provides the IRA custodian or trustee with the documentation required by that custodian or trustee. The trustee of the trust should contact the IRA custodian or trustee for details on the documentation required for a specific plan.
  The deadline for the trustee to provide the beneficiary documentation to the IRA custodian or trustee is October 31 of the year following the year of the owner's death.

This can be a big deal if you miss it, as the lifetime stretch out is lost and you are defaulted into the 5 year rule to take out all the IRA proceeds. Don't mess this one up, send in your paperwork and call your IRA custodian to make sure you are in compliance.

The basics on inherited IRA's are you usually want to defer any payments for as long as possible, to let the tax-favorable account grow. If you miss the deadlines, you get punished. Here are more dates to remember:
Here are key dates you should keep in mind to make sure you meet the IRS deadlines that apply to the options you choose.
  • December 31 of the original account owner's year of death. If the account owner died on or after his or her required beginning date,  the RMD for the year must be satisfied if it was not taken in full during the account owner's lifetime.
  • December 31 of the year following the original account owner's year of death. If you are taking RMD based on the life-expectancy method, distributions must begin by this date. If you are one of multiple beneficiaries, all beneficiaries must have established separate inherited IRA accounts by this date in order to calculate distributions based upon each beneficiary's own life expectancy.
  • September 30 of the year following the original account owner's year of death. Important for determining the beneficiary whose life expectancy may be used to calculate RMD (the designated beneficiary). If you're one of multiple beneficiaries of varying ages, all beneficiaries must use the life expectancy factor of the oldest beneficiary who has not taken a lump-sum distribution or disclaimed his or her entire interest prior to this date. However, if all of the beneficiaries have established separate IRA accounts by December 31 of the year following the account owner's death, then all beneficiaries may be able to use their own life expectancy factors to calculate their RMD. Check with your tax advisor to see if you are eligible for this benefit.
  • October 31 of the year following the account owner's year of death. Important if you are the trustee of a trust named as IRA beneficiary. The IRS mandates that trustees provide Vanguard with a copy of the trust document or a summary list of the trust's beneficiaries and conditions by this date. If this requirement is not met, or if the trust failed to meet certain other IRS requirements, it's not considered a qualifying trust eligible for more favorable RMD calculations, usually based on the life-expectancy of the oldest trust beneficiary.
    • (thanks vanguard for the good summary)

Remember, missing an important date can cost you or your clients big. Stay safe out there, and have a happy halloween.