Creating a will or trust is a vital part of anyone’s estate plan, but it’s not where the planning ends. Ensuring that the beneficiaries you’ve listed on 401Ks and other retirement accounts, insurance policies, annuities, etc., are coordinated with those estate planning documents is essential to the success of that plan.
You may have the most beautifully written will, with all the bells and whistles, but if your insurance policy or 401K has named beneficiaries who are meant to receive that money by virtue of your will, your intentions are probably going to be frustrated. This is because the beneficiary designations on those types of accounts supersede any bequest made in a will. This kind of oversight can have drastic consequences.
For example, If you have young children, you likely have provisions in your will which create a trust for the benefit of your children when you and your spouse pass away. However, if the beneficiary designations on your IRA and insurance policy name your children as contingent beneficiaries, and you and your spouse where to pass together, your IRA funds and insurance proceeds would ignore the “minor trust” and go directly to your children. If they’re 18 or older, they would legally be entitled to accept that money directly. If you’ve ever met an 18-year old, or have been 18 yourself, you can probably appreciate why that’s a highly undesirable outcome. Perhaps equally undesirable is the result if those kids are still minors. In that case, those funds must be assigned a guardian by the court, which further complicates the accessibility those funds.
Other situations in which beneficiary designations get complicated include those where people have additional children and neglect to add them as beneficiaries or in divorces or second marriages where previous spouses are left on accounts.
If you or someone you know would like further information on this, please contact me.