Beneficiary Blunders

Have you taken the time to create an estate plan or have you been thinking about needing to get a will, living trust, or power of attorneys in order? We often work with people who believe that after they get these written documents created, that they don’t need to think about it anymore. Often times, they forget that during that process, they did not take a look at their retirement planning accounts, such as their 401k’s, IRA’s, 403b’s, or life insurance policies.  Why is this important? Because when it comes to estate planning, if you have a beneficiary, on your 401k, or your 403b, or your IRA, it doesn’t matter what your will says on that retirement account, that is where the money goes.
To put this in perspective, let’s say you were married before and you still have your first spouse listed as the beneficiary of your life insurance. You have had the life insurance for years and forget about it. You get divorced and then remarried, and everything is going well with your new spouse, so you have your will and trust updated, so everything is up to date. All the money now is supposed to go to your new wife, but, you forget about that insurance policy, and you die, so where does that insurance go? It goes to the old spouse, and this is one of those areas (life insurance, retirement plans, etc.) where the Supreme Court has ruled 9 to 0, saying that whatever it says on your insurance, or on your 401k, it doesn’t matter what your will or trust says.
Simply having a will in place may not protect you from this particular example happening to you, and can have other detrimental consequences to your loved ones, who may experience probate and unnecessary taxation. Below are three proactive steps to help you avoid making these critical mistakes:
  1. Name a beneficiary, as well as listing contingent beneficiaries or contemplating disclaimers
  2. Be specific in your beneficiary designations
  3.  Keep designations up-to-date (review every few years) and keep all beneficiary designation forms on file

I invite you to tune into Redefining Retirement this Sunday at 5:30pm on Channel 2 News, where we will further discuss common beneficiary blunders and the rules in which your money is disbursed to beneficiaries.

Cornerstone Retirement Group