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Beneficiary Designations - The Overlooked Minefield of Estate Planning
June 22, 2020 at 11:30 AM
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Beneficiary designations are confusing, yet crucial, to ensuring inheritances pass as you wish. Asset classes requiring beneficiary designations include life insurance, 401(k)’s, IRA’s, 403(b)’s and annuities. These types of investment accounts are contractual in nature and pay to the named beneficiary - period.

Common mistakes include:

- Thinking Your Will Has More Power Than It Does: Wills do not override beneficiary designations - rather, the other way around. That said, when creating a Will, be sure to check that beneficiary designations are coordinated and updated.

- Letting Accounts Fall Through The Cracks: Often, old accounts are left with old beneficiary designations (e.g., an ex-spouse). Be sure to check all retirement accounts and update their beneficiary designations promptly.

- Failing to Plan for Contingencies: It is possible for your primary beneficiary to die before you, so naming back up beneficiaries (also called contingent beneficiaries) is crucial. Equally important is fairness. Most forms allow for a designation known as “per stripes” that ensures that a predeceased child’s share passes to his or her children before the other named children. Ignoring this critical detail can create unintended consequences, ill will and litigation, by inadvertently cutting out grandchildren.

Best practices for beneficiary designations include keeping hard copies of all changes (including website or email confirmations) and checking up on your estate plan every 3-5 years including any beneficiary designation changes.