Is it Time to Check Your Beneficiary Designations?

This is the time of year when we see a lot of new clients who are following up on their New Year’s resolutions to create or update their Living Trusts.

But when was the last time you checked to see whom you named as the beneficiary on your retirement account, life insurance policy, or annuity? You’d be surprised at the number of people who have prior spouses or deceased relatives still named as beneficiaries on retirement accounts at former employers, or on life insurance policies purchased long ago and forgotten.

Updating a beneficiary designation: It supersedes your Will or Trust

The beneficiary designation is a legally binding document that supersedes your Will or Trust; neither will override the person you have named as your beneficiary in a life insurance policy, annuity or retirement account.

If something had happened to our client, his ex-wife would have inherited most of his assets

This story, unfortunately, is not that uncommon. It illustrates the importance of periodically reviewing your Trust allocations. Our client hadn’t reviewed his Trust in more than eight years, and he was shocked to discover that if something happened to him, all of his assets, exclusive of the home he held with his current wife, would go to his ex-wife, who was still identified as his Successor Trustee, his Power of Attorney and Agent for his Advance Healthcare Directive. We scheduled an appointment to completely rewrite his Living Trust. 

A forgotten 401k plan beneficiary update results in husband’s receiving all of wife’s assets

Another client’s wife had worked for a large multinational for many years. It was a second marriage, and when she became seriously ill with cancer, she created a Living Trust. She wanted her two children and husband to each get one-third of her assets. However, she failed to update her beneficiary designation for her 401k plan, so that sizeable account went directly to her husband. He wanted to honor her wishes, but if he cashed in the 401k and paid it to the kids, he would have taken a huge hit on his taxes.

He and the kids set up an IRA in his name, and the kids were named as the beneficiaries. They agreed that, with each distribution he made to them, he would withhold enough to cover the taxes. While this ultimately worked out, it would be an ongoing administrative hassle. It could have been avoided by updating the retirement plan beneficiary form at the wife’s employer. When identifying your primary beneficiary, you should also name a contingent beneficiary. In this way, if the primary beneficiary predeceases you, you have already specified who should inherit the account.

A Living Trust is an important part of estate planning, and our comprehensive Trust package includes a Power of Attorney and Advance Healthcare Directive. Schedule an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.