A well-established estate plan clearly defines the beneficiaries who will be receiving your assets when you pass away. Beneficiaries are named for assets such as mutual funds, IRAs, retirement plans, life insurance documents, brokerage accounts, bank accounts, 529 plans and annuities. A mistake that some Colorado residents end up making involves failing to update designated beneficiaries when circumstances change. For example, if you get a divorce but never remove your ex-spouse as a beneficiary, some of your assets could end up going to your ex regardless of what’s stated in your will.
Periodically reviewing beneficiary designations is a part of effective estate administration. There are a number of life events when such a review is recommended. For example, when you change jobs, you should review your beneficiaries. If you transferred money from an old retirement plan to a new plan with your new employer, the beneficiaries may have lost claim in the process. Make sure that the correct people are listed on your new plan.
You’ll also want to review beneficiaries for any accounts at financial institutions that have gone through big changes. If your bank changed ownership, it may have dropped your beneficiary designations.
Make sure to update your documents if any of your beneficiaries pass away. If no beneficiary is listed, your assets may need to be divided through probate litigation.
You may also want to designate a new child or grandchild as a beneficiary. If the child is a minor, you may want to look into establishing a trust and naming the trust as one of your beneficiaries.
You’ll also want to examine your designation of a beneficiary if he or she becomes disabled. Receiving part of your estate when you die may prevent the beneficiary from certain Social Security and Medicaid benefits.
It’s also important to make sure that your beneficiaries match those listed in your will. If your will is not consistent with your account designations, it can lead to confusion and possibly even litigation within your family. An attorney can help insure that these designations are consistent and help avoid unnecessary problems among your family members and other heirs.
Source: forbes.com, “The Big Estate-Planning Goof You May Be Making” Harper Willis, Dec. 16, 2013