Don't forget to update your beneficiary designations
A truly thorough estate plan involves utilizing a variety of estate planning tools tailored to a testator's unique circumstances. Even the best laid plan can quickly become ineffective if the testator never revisits that plan as time goes on. As our lives change, our estate plan needs to be updated along with it.
Beneficiary designations are one part of our estate plan that could cause some very unintended consequences if they are forgotten about. We are talking about beneficiary designations that are made for IRAs, 401(k)s, life insurance policies, bank accounts, annuities, brokerage accounts and even 529 college savings plans.
Beneficiary designations can override the terms of the will. If a will is updated but the designations are forgotten, assets could go to the wrong person. Revisiting these designations can help avoid an unplanned consequence.
What are some reasons for updating a beneficiary?
A change in marital status is one of the most common reasons for updating beneficiary designations. This includes marriage, divorce and remarriage. Under some jurisdictions, the law may prevent an ex-spouse from receiving these assets, but would you want to take the chance that it won’t?
Another major reason is a change in employment. Every time assets are transferred from one retirement plan to another, a new beneficiary designation must be made.
What if there is a death or a birth in the family? Both of these events may change the testator’s wishes. A death would mean that the secondary beneficiary would become the primary and a new secondary should be named. What if there is no secondary named? Where will the assets go?
With the birth of a child or grandchild, new considerations may be made. However, if this individual is still a minor when the designation is made, further action may be necessary -- like creating a trust to hold the assets in his or her benefit.
What if the named beneficiary suffers an accident or is diagnosed with an illness that leaves him or her disabled? Naming this individual as a beneficiary could affect the ability to receive public assistance such as Supplemental Security Income benefits. Again, the assets can still be given to this individual, but creating a Special Needs Trust might be a consideration to make.
Pennsylvania residents with simple or complex estates can benefit from a discussion with an attorney that focuses on estate planning.
Source: The Wall Street Journal, “Don’t make the No.1 estate-planning goof,” Harper Willis, Jan. 23, 2014