It happens more than you’d think: someone thinks they have made all the necessary provisions for their loved one(s). Then they die, and during the process of settling the estate, the wrong person becomes the recipient of an extremely generous life insurance policy. For example, a single dad had named his sister as his designation because she is his kids’ godparent. Yet, when he dies his children are over the age of 20, but he never changed his designation. The kids can’t do a thing about it and their aunt is unsure of why that designation had not been changed.
As WMUR explains in its recent article, “Money Matters: The trump card of estate planning,” that typically beneficiary designations can be the trump card of estate planning.
That’s why assigning and regularly reviewing your beneficiary designations is a critical part of estate planning. Remember that assets for which beneficiary designations trump wills, trusts or estate directives include the following:
- Individual and Group Life Insurance;
- Traditional and Roth IRAs
- Qualified Retirement Plans and 401(k)s;
- Employee Stock Ownership Plans (ESOPs);
- Contractual rights under deferred compensation plans; and
- Employment contracts
It is vital to remember that a change to your will or your trust doesn’t automatically make changes to all your assets listed in those documents. You must review and make changes to your beneficiary designation so it is aligned consistent with your wishes and instructions.
Beneficiary designations are effective immediately after death. Since they override any instructions made in your will, those assets won’t have to go through probate. Be certain that your beneficiary designations are updated and coordinated with your overall estate plan. It’s a good idea to review and update them, after any major life event like a marriage, divorce, or the birth or adoption of a child.
Don’t forget to name contingent beneficiaries as well. If the primary beneficiary passes way, or if you die at the same time, that way you can be sure that the proceeds from the accounts go to the secondary or contingent beneficiaries. This is especially important, if your beneficiaries are over age 50.
Ensuring you have updated all of your estate planning documents especially your beneficiary designations is a critical part of the ongoing estate planning process. It is important to remember that estate planning does not end after creating the plan and signing on the line. Life involves personal and financial changes and your estate plan should change with you. At Family Estate Law Planning Group, estate planning is a relationship between the firm and our clients. We work with you on an ongoing basis, keep track of your ever-changing assets, and suggest changes that will best benefit you and your estate plan because our mission is taking care of families when it matters.
Reference: WMUR (April 5, 2018) “Money Matters: The trump card of estate planning”