So you’ve named beneficiaries for your 401(k), IRA, or life insurance policies…Make sure those designations still reflect your intentions. Beneficiary designations are legally binding documents and supersede whatever is written in your will, Ohio attorney Joan Burda points out.
“Accounts that carry a beneficiary designation offer one of the simplest and most direct ways to efficiently get assets into the hands of loved ones after your death—but only if you have completed the paperwork properly and the information is up-to-date,” Franklin Templeton cautions.
What happens if the information is not up-to-date? If you don’t have a primary beneficiary or contingent beneficiary on your accounts – either because the individuals you named have died or because you simply never specified anyone – your estate may become the beneficiary. Assets left to your estate are subject to the delays,costs of probate and creditor claims, and will be distributed according to the terms of your will or intestacy law if you do not have a will in place.
A different issue can be posed by 529 savings plans, Franklin Templeton warns. If you are the account owner for a minor, your death will not affect the designation of a beneficiary (usually a child). However, you should appoint someone you trust who can take over as successor account owner because only the account owner of a 529 Plan can change the beneficiary and authorize distributions.
At Geyer Law, there’s a reason we spend so much time discussing beneficiary designations with our clients. The process, our clients have learned, involves much more than just filling in blanks with names;“what if” scenarios and tax consequences need to be discussed thoroughly.
Thebalance.com shares a story that illustrates the point…
A client who worked for a large corporation was in a second marriage. He wife became ill with cancer and had a trust drawn up, leaving one third of her assets to her husband, with a third going to each of the children. Unfortunately, she did not update the beneficiary designation on her 401(k) plan, on which only her husband was named beneficiary. This omission meant that taxes needed to be paid by the husband before he could share the assets with the children.
The attorneys at Geyer Law are trained to consider both ends of the spectrum, and understand how present planning of beneficiary designations can affect outcomes years later.
Be aware – beneficiary designations trump wills!
– by Cara M. Chittenden