Nerd Wallet, in “Avoid This Estate Planning Mistake,” reminds us that many assets have their own beneficiary designations, including retirement plans like 401(k)s, 403(b)s, pensions, IRAs, annuities and life insurance plans.
Many folks don’t check them. They think their will or living trust controls their distribution. Classic estate planning mistake.
Sometimes it’s a shock to discover that the deceased spouse didn’t update the beneficiary designations. The beneficiary is still the husband’s first wife—whom he had designated 25 years ago when he first established the account. As a result, his surviving spouse receives none of the funds associated with his IRA. The ex-wife gets the money.
Under the law, assets like IRAs aren’t subject to probate, but instead are passed using a beneficiary designation. They aren’t controlled by a will. The only situations in which a will controls a non-probate asset are if there’s no designated beneficiary or if the beneficiary is the estate.
The Supreme Court has ruled that your beneficiary designations on insurance policies, IRAs, and other retirement accounts will always trump the beneficiaries of your will if case they are different.
So make certain that updating beneficiaries is a part of your financial planning checklist. Review the beneficiaries of your non-probate assets every few years; and make sure the beneficiaries of your will and living trust are still the individuals or entities that you want. These documents help heirs avoid probating your estate and allow you to establish beneficiaries for assets that don’t have specific beneficiary designations.
You’ve worked hard to create a legacy for your family. Take these actions to avoid a simple but costly mistake that could damage that legacy.
Reference: Nerd Wallet (May 6, 2016) “Avoid This Estate Planning Mistake”
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Author Bio
Kim Hegwood
Managing Attorney
Kim Hegwood is the Founder and Managing Attorney of Your Legacy Legal Care®, a Houston-based estate planning and elder law firm she established in 1998. A graduate of South Texas College of Law, Kim was inspired to focus her practice on elder law and estate planning after watching her own grandparents struggle with the challenges of aging. With nearly 30 years of experience, she helps families with wills, trusts, powers of attorney, Medicaid planning, and asset protection.
Kim is a Certified Dementia Practitioner and a member of the National Academy of Elder Law Attorneys, and her firm has been named Best Trust & Estate Law Firm by the Houston Chronicle. A mother of three, she spends her free time with her children and grandchildren and volunteers with several local charities.
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