estate planning law firm, we cannot stress enough how important beneficiary designations
are to the estate planning process. At first glance, people may not realize
that a large portion of a person's wealth can be controlled by beneficiary
designations. For example, a portion of a client's wealth may be controlled
by beneficiary designations in the form of life insurance policies, bank
accounts with payable on death designations, retirement accounts and investments.
A beneficiary is defined as a person or legal entity that is entitled to
receive the proceeds of an estate, trust, retirement account, life insurance
policy or bank account. A beneficiary can be an individual or it can be
an entity such as a
trust or a charity.
Beneficiary designations are critical because when they are on retirement
accounts or life insurance policies, they generally supersede instructions in
wills, which is why it's so important to keep your beneficiary designations
up-to-date. If you fail to periodically review your beneficiary designations
on insurance policies, retirement accounts, and other financial accounts,
when you pass, those assets can wind up in the wrong hands, thus resulting
in an expensive and long-drawn out court battle for your loved ones, and
there is no guarantee that they will prevail in court.
Periodically Review Your Beneficiary Designations
You should periodically review your beneficiary designations and possibly
update them when:
- You experience a major life event such as a birth, marriage, divorce, remarriage,
or death in the family.
- You update your estate plan.
- You have a falling out with a child, a sibling or parent.
- You roll over your 401(k) or Individual Retirement Account (IRA).
Some people will hire an attorney to put together an estate plan, and once
those documents are drawn they will file them away in a drawer somewhere
for safekeeping. Unfortunately, decades can slip by and the estate planning
documents are long forgotten.
The same situation can occur when someone starts a new job and establishes
their beneficiary designation on their 401(k). On too many occasions an
employee names their spouse on their 401(k), only to be divorced and remarried
years later. When such individuals forget to update their beneficiary
designations upon divorce, and subsequently a remarriage, the surviving
spouse can be in for a big, unpleasant surprise.
Beneficiary designations are a major component to an estate plan and they
are extremely important. The main purpose of estate planning is to have
control over your assets when you die, but failing to update beneficiary
designations can undermine this very purpose and thwart your best efforts.
Since a large portion of our clients' wealth is controlled by beneficiary
designations, it's important to review designations made early in
life, because they may not reflect your wishes today.
While a state statue may save the day on occasion, in other instances it
may not. Make sure that you periodically review and update your beneficiary
designations so your assets are distributed to whom you want, when you want.
To arrange a free consultation with a Santa Rosa estate planning attorney, contact
The Law Office of Eric S. Gullotta today by calling (707) 509-3880.