Just because you have executed a will or living trust does not mean you are through with your estate planning. Even the best estate plans can be unraveled by uncoordinated beneficiary designations through one or two strokes of a pen.
What is the quickest way to un-do an otherwise carefully planned estate?
Open a bank account, brokerage or retirement account and mindlessly sign beneficiary designations without thinking them through.
Why? The beneficiary designations on these accounts override your will or living trust. Yes, it’s true – the beneficiary designation is the estate planning trump card. We have seen many estate plans unravel due to uncoordinated beneficiary designations.
The Wall Street Journal last week issued a warning in an article entitled Beware the Beneficiary Form. The Journal offers a few tips to protect you from this type of estate plan destruction, to include:
Know what kinds of assets have beneficiary designations. Did you know that U.S. Savings bonds have a beneficiary form? Other assets for which you may have named a beneficiary include retirement accounts, life insurance policies, bank accounts, certificates of deposit, stocks, bonds and mutual funds.
Review your beneficiary designations regularly and certainly after any life-changing event such as a marriage, divorce, birth or death of a loved one. Also, job-changers and retirees take note: Beneficiary designations on retirement plans don’t carry over when you roll a 401(k) to a new employer’s plan or to an IRA, or when you convert a regular IRA to a Roth IRA.
If you are unsure whether your accounts have beneficiary designations or whether those beneficiary designations are currently coordinated with your estate plan, then you should consult your estate planning attorney to resolve these issues.
Reference: The Wall Street Journal (July 6, 2011) “Beware the Beneficiary Form”