When is the last time you checked to see who you named as the beneficiary on your retirement account, life insurance policy, pension plan, profit sharing plan, 401(k), or IRA? Like many people, you may have neglected to update your beneficiary designations after marriage, divorce, or other changes in your family situation.
You may believe that preparing your Will or Trust is the final step in making sure that your estate plan is complete. However, your beneficiary designations supersede any directions in your Will or Trust. Using a poker analogy, your beneficiary designation “trumps” your Will or Trust. Therefore, it’s important that you coordinate your beneficiary designations as part of your overall estate planning strategy.
Here’s an unfortunate example. In 2018, Jane retired as a banking executive. Sam, her second husband, is the designated beneficiary of Jane’s 401(k). Unfortunately, in 2016, Sam and Jane get divorced. After the divorce, Jane signed a new Will which leaves her entire estate to her two children from her first marriage. However, after signing her new Will, Jane failed to remove Sam as her 401(k) beneficiary. After Jane’s death, Sam received Jane’s entire 401(k) and her two children received none of these benefits.
The important point to remember is that your Will or Trust will not override your beneficiary designations (at least not easily and maybe not at all). Whoever you name on your most recent beneficiary form will get the money when you die. Regularly checking your beneficiary designations can ensure that your assets go to where you want them to after you are gone.
When you create your estate plan, your attorney should review all of your assets and give you recommendations for each asset on the proper ownership and beneficiary designations to ensure they work with your plan and not against it. Ensuring a comprehensive plan takes work and reviews! Review your planning (and your assets) with your attorney every couple of years to ensure that everything is aligned to leave a lasting legacy for your loved ones.