When it comes to estate planning, it is rather easy for the whole thing to crash and burn. Some common causes are obvious, like trying to create your own estate plan online. One mistake, however, is more subtle.
A recent Wall Street Journal article, titled "How People Undermine Their Own Written Will," explains that most people believe their written will has priority over and supersedes the beneficiary designations on their investments.
This is not true!
When you designate a beneficiary on a life insurance policy, a 401(k) plan, or an IRA—that is a binding contract. The basic tenants of contract law apply just as with other familiar contracts, like a mortgage or a sales contract.
Consequently, if your will leaves "everything" to your brother, but the beneficiary designation form on your IRA designates your sister, then your brother is out of luck. Despite your explicit instructions in your will, the IRA will go to the named beneficiary.
Most of the beneficiary designation forms in use today provide for listing a primary beneficiary AND a contingent beneficiary. This gives you plenty of options to map out your estate plan with all of the necessary "if this, then that's" for distribution flexibility.
Marriage, birth of child, divorce, re-marriage, child adoption, a new job—all of these life events and many more should motivate you to consider the thoroughness and current condition of your will preparation and beneficiary designations. Do not let your loved ones be surprised and disappointed by the realities of probate and contract law.
Set up your beneficial designations and your will with the guidance of 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) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Wall Street Journal (September 24, 2014) "How People Undermine Their Own Written Will"