VanAntwerp Attorneys, LLP
Phone: 606-618-0698

Estate planning: Update all your beneficiaries on a routine basis

Accounts like 401(k) and 403(b) plans, IRAs and life insurance need beneficiaries assigned. You probably designated a beneficiary when you were first hired, opened the account or purchased the policy.

How many years ago was that? If it has been a few, you may be surprised by who you're leaving your assets to. One of the most important parts of managing your estate for your loved ones is keeping it up to date. It seems easy enough, but consider the mistake this professional financial planner almost made.

The financial planner had gotten a divorce 20 years ago when her kids were small. As part of the divorce, the couple divided up their retirement assets.

While many people make the mistake of leaving their ex as the beneficiary of their life insurance and retirement accounts, this financial professional was more informed. She remembered and took the time to choose a new beneficiary.

Since her children were only 2 and 4 at the time, she decided to designate her father as the beneficiary, with the understanding that he would use the money to take care of the children's needs.

After 20 years, however, she hadn't changed the beneficiary. "I'd always made sure that all my clients had the right beneficiaries for their accounts. But when I got home from work, the last thing I wanted to do was look at my own," she says.

In that time, the financial planner's mother had passed away and her father had remarried. Under the law of her state, if she had died her accounts would have gone to her step-mother with no easy way for her children to contest it.

You see, unlike assets passed by a will, retirement accounts and life insurance policies don't go through probate. In the probate process, a representative of the estate gathers all the deceased person's assets and money, pays off any debts, and divides the remainder among the beneficiaries. It is a court process where the beneficiaries can be represented and, if they choose, they can challenge the will.

Without a formal probate process, potential beneficiaries have little visibility over the payment of a life insurance policy or the transfer of retirement assets. It's more difficult to challenge, although not impossible.

It's easy to check your beneficiary designation. You can either call the customer service department or check the designation online. You can sometimes change the beneficiary online, especially during annual enrollment for employer-supplied plans. Otherwise, all most companies need is a written change of beneficiary request.

If you would like assistance, however, please contact an estate planning attorney.

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