When you set up your estate plan it is important to coordinate the legal planning documents that you or you and your attorney create with the document provided by your retirement account custodian and/or your life insurance carrier called a ‘Designation of Beneficiary.'

The beneficiary designation will always supersede language of your will. Neglecting to know which assets have beneficiary designations and failing to update the designations can undo even the best estate plan.

The beneficiary designation for your life insurance or retirement account custodian provides an opportunity to tell the company who is to receive life insurance proceeds or retirement savings upon your death, explains a recent article titled “This Important Estate Planning Step is Often Missed” from Coeur d'Alene/Post Falls Press. If these are not coordinated with a last will and testament, the results are problematic at best, and worse, financially, and emotionally devastating.

This epic fail comes in many different forms, but the most common is when a life insurance policy has never been updated and an ex-spouse receives the policy proceeds. The rules differ between retirement accounts and life insurance and can be impacted by various state and federal laws (and the divorce decree, if the life insurance policy was included). However, for the most part, the ex will receive the proceeds and litigation will not succeed.

Another common beneficiary designation mistake is when a person has created a living trust or revocable trust to prevent assets from going through probate when they die. Probate can take many months to complete and there are several strategies used to take assets out of the probate estate.

When the living trust is established and assets are transferred into the trust, those assets do not pass through probate.

However, if a person (or married couple) established a living trust and fails to list both primary and secondary beneficiaries for life insurance and/or retirement accounts, it is entirely possible that the assets will go through probate.

Take the time to make an inventory of all assets and accounts. Determine which ones have a beneficiary designation and find out who is named as the beneficiary. If your retirement accounts and life insurance policies were established decades ago, this is especially important.

Failing to coordinate beneficiary designations with your estate plan could undermine your wishes. Review these items with your estate planning attorney to avoid these and many other potential pitfalls.

Call a Conejo Valley Estate Planning Attorney experienced with Beneficiary Designations. Book a Call

Reference: Coeur d'Alene/Post Falls Press (May 23, 2022) “This Important Estate Planning Step is Often Missed”