You might want to read Egelhoff v. Egelhoff, 532 U.S. 141 (2001) and then ask the children of Mr. David A. Eggelhof.
After their father divorced Donna Rae Egelhoff (their stepmother), he forgot to update the beneficiary designations on his Boeing retirement funds.
Consequently, instead of his children inheriting his retirement funds when he died unexpectedly ... his ex-wife did.
In fact, the unanimous opinion of the high court was that federal law governing ERISA retirement plans preempted the contrary state law "disinheriting" ex-spouses.
But this problem is all too common.
When people think about estate planning, many overlook the importance of updating beneficiary information on assets like 401(k)s, IRA and life insurance policies.
According to a recent article in USA Today, many Americans have the majority of their assets tied up in such assets, too.
The article, titled "Your ex could get rich if you don't update your beneficiaries," explains that beneficiary designations on a 401(k), IRA and life insurance policies are legally binding and take precedence over anything in your will when passing to a beneficiary or beneficiaries outside of the will.
This can lead to some serious unintended consequences, to include litigation!
But life changes and so should beneficiary designations.
For example, like Mr. Egelhoff, they might have been married, had children, divorced and remarried.
Leaving an estate to an ex-spouse or disinheriting your own children is not uncommon.
What if family circumstances are "friendly"? The "unintended" beneficiary can just give it back or transfer the inheritance, yes?
The IRS allows gifts of under $14,000 tax-free per individual donee annually.
Any amount in excess of that "annual gift exclusion" is subject to gift taxes.
Never forget this truth: a beneficiary designation always trumps a will.
Review your accounts and decide now how you want them to pass to your family later, instead of leaving the inheritance up to chance.
Consequently, you need to review your beneficiary information regularly.
Lather, rinse, repeat.
Many accounts allow you to designate beneficiaries with a simple online form, so you can ensure the orderly transfer of wealth in just a few minutes.
Other accounts may take more time to update, but you and your heirs will be glad you did.
Here are some common events triggering a need to update beneficiary designations:
- Marriage or divorce;
- Birth of a child or grandchild;
- Death of a previous beneficiary; and
- When a minor beneficiary comes of legal age to inherit.
Here are some of the financial assets through which you may designate a beneficiary:
- Retirement accounts (401(k) or IRA);
- 529 college saving plans;
- Life insurance;
- Annuities with a death benefit;
- Corporate profit-sharing plans;
- Pension plans;
- CDs, checking accounts or other bank accounts; and
- Some stocks, bonds, and mutual funds.
The safest bet is to work with an experienced estate planning attorney who can help you integrate and coordinate all of your assets in proper alignment with your estate planning documents. That way your estate plan will operate as intended when needed.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
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: USA Today (January 14, 2016) "Your ex could get rich if you don't update your beneficiaries"