Many people incorrectly assume that all their assets will be distributed through their will. Unfortunately, this is a big misconception. A good example of this is retirement savings, such as an IRA or 401(k). These accounts are passed on to the person or persons who were designated on the form when the account was started. Many people don’t give much thought to these forms, especially after they first fill them out, but that can cause huge problems down the road. (Read about how such a mistake cost the adult children of Leonard Smith $400,000.)
Just recently, here at Edwards Group, we had this sort of situation arise as well. A client had an old 401(k) from a previous job in which his parents were named as beneficiaries. Unfortunately, they had passed away so the 401(k) had no beneficiaries listed. When the client died, we had to go through the expensive process of probate court to get the 401(k) into the hands of the right people.
Improper beneficiary designations can also jeopardize nursing home care if Medicaid is paying for that care. Recently we had a case where the spouse of someone in nursing care died, leaving money to the disabled spouse instead of their adult children. This large amount of money is now jeopardizing the surviving spouse’s benefits.
I cannot emphasize enough how important these beneficiary designations are! It is not enough to just fill out the form once and then leave them be. It is vitally important that you check these designations yearly as a part of the regular upkeep of your plan. (Download our Beneficiary Designations form here.)
So, what types of assets with beneficiary designations trump a Will?
- Life insurance policies
- Retirement accounts such as 401(k)s and IRAs
- Bank accounts with a payable on death provision
- Investment accounts with a transfer on death provision
And what kind of life changes should trigger a review of beneficiary designations? After the following life changes, you need to double check who you put on your beneficiary designation forms:
- Job changes, including retirement
- Long-term care needs of one spouse
- Disability of a child or grandchild
Now, here’s what to do to make sure this doesn’t make a mess for you or your family:
Make a list of all retirement accounts, life insurance policies, annuities and investment accounts. To the right of those specific assets, write who the beneficiary is and the date you last designated them. Review this list once a year (like on April 15). Or join the Dynasty program where we help you keep up with all of this. We’ve also included a PDF you can download to help make the process easier.
This whole issue highlights why Laura and Liis are so important to the clients at Edwards Group. Many of you may wonder why we need two Asset Coordinators, but it is a big job and it is a critically important job. One of the biggest mistakes people (and even other attorneys) make is not properly handling assets within an estate plan. You cannot have an effective plan if the assets have not been properly titled, designated and coordinated.
As always, if you have any questions about beneficiary designations or any other estate planning or elder law issues, please call us at 217-726-9200. We will be happy to speak with you and answer any questions we can.