You can update your will twenty times, but if you don’t change the beneficiary designations, the unwanted consequences could be awful for your loved ones.
It happens more than you’d think: a husband thinks he has made all the necessary provisions for his second wife. Then he dies, and during the process of settling his estate, the first wife becomes the recipient of an extremely generous life insurance policy. The ex-spouse is planning a long trip to Europe, while the current spouse can’t do a thing about it.
As WMUR explains in its recent article, “Money Matters: The trump card of estate planning,” depending on state law, beneficiary designations can be the trump card of estate planning. In almost all cases under this scenario, the ex-wife will receive the life insurance proceeds.
That’s why assigning and regularly reviewing your beneficiary designations is a critical part of estate planning. Remember that assets for which beneficiary designations trump wills or estate directives include the following:
- Individual and Group Life Insurance;
- Traditional and Roth IRAs
- Qualified Retirement Plans and 401(k)s;
- Employee Stock Ownership Plans (ESOPs);
- Contractual rights under deferred compensation plans; and
- Employment contracts
It’s vital to remember that a change to your will or your trust doesn’t automatically make changes to all your assets listed in those documents.
Beneficiary designations are effective immediately after death. Since they override any instructions made in your will, those assets won’t have to go through probate. Be certain that your beneficiary designations are updated and coordinated with your overall estate plan. It’s a good idea to review and update them, after any major life event like a marriage, divorce, or the birth or adoption of a child.
Don’t forget to name contingent beneficiaries as well. If the primary beneficiary passes way, or if you die at the same time, that way you can be sure that the proceeds from the accounts go to the secondary or contingent beneficiaries. This is especially important, if your beneficiaries are over age 50.
Reference: WMUR (April 5, 2018) “Money Matters: The trump card of estate planning”