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Estate  Planning

By Jason Dyken, MD MBA

[Dyken Wealth Strategies]

Dear David,

It’s not uncommon for people to assume that having a will in place is enough to ensure their assets will pass to their named beneficiaries in the manner they desire. However, certain financial assets, including 401(k) and IRA retirement accounts, as well as life insurance policies bypass a will or trust.

One benefit is that when the account owner dies, the assets go directly to the beneficiaries named on the accounts, bypassing the probate process. However, because these beneficiary designations override your will, they need to be carefully coordinated with your overall estate plan.

Some of the most common mistakes people make in regard to beneficiary designations include:

• Forgetting to update named beneficiaries in the event of divorce. If your previous spouse is still listed as the beneficiary on your retirement account or life insurance policy at the time of your death, the assets will go to your ex, regardless of whether he or she is a named beneficiary in your will.
• Naming minor children as beneficiaries or contingent beneficiaries. In the event you and your spouse predecease your children, they could directly inherit large sums of money from retirement accounts or life insurance policies—assets that are not governed by stipulations you may have included in your will or trust documents. Avoid leaving assets to minors outright. If you do, a court will appoint someone to look after the funds which can be a time consuming and expensive process.
• Using beneficiary forms that don’t allow your assets to pass “per stirpes,” or equally among the branches of a family. For example, let’s say you name your three adult children as the beneficiaries of your IRA. If one of them predeceases you, you might want that child’s share to go to his or her children. However, many standard beneficiary forms don’t include per stirpes provisions and only allow per capita provisions where your two remaining adult children would share the assets. In certain cases, you can ask to include non-standard language to the beneficiary form, but make sure the financial services company actually has the capabilities in place to manage per stirpes distributions first.

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Assessment

An estate planning attorney or financial advisor with experience in estate and legacy planning can help ensure your beneficiary designations are up-to-date and aligned with your wishes and preferences.

Conclusion

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Filed under: Estate Planning | Tagged: Estate Planning, Jason Dyken, Naming Beneficiaries | 1 Comment »