Failing to update your beneficiary designations could undermine your estate plan.
Beneficiary designations are responsible for the transfer of significant assets.
- Life insurance policies
- Retirement accounts
See what I mean by significant assets?
According to a recent Trust Advisor article titled “These Hidden Estate Planning Mistakes Can Have Horrible Consequences,” neglecting this estate planning step can be costly.
Worst case scenario?
You leave these assets to your ex-spouse rather than to your new spouse or your own children.
Even if the result is not this drastic, it can undermine your estate planning efforts.
Let us say you married someone who had no children, but you have two.
You visit an estate planning attorney and decide to divide your assets equally between these three when you die.
Then you die.
But you never changed your beneficiary designations on your 401(k).
You only named your spouse, leaving him or her more than one third of your assets.
Now, you married to a respectable and loving individual who also loves your children.
Your spouse contacts your employer.
He or she asks for the money to be divided in thirds.
Your employer is powerless to do this.
It is legally bound to pay to the designated beneficiary.
Your spouse still wants to honor your wishes.
He or she rolls the money into his or her own IRA then withdraws the amount due each child and gives each their share.
Sounds fine, right?
Your spouse had to pay avoidable taxes on these funds.
The failure to update the beneficiary designations to reflect your estate planning wishes cost your loved ones time and money.
In the end, it actually enriched the IRS.
Could a will or trust fix this?
Beneficiary designations trump your expressed wishes in a will or trust.
The best thing to do?
Review and update your beneficiary designations periodically with an experienced estate planning attorney.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Trust Advisor (March 9, 2017) “These Hidden Estate Planning Mistakes Can Have Horrible Consequences”