One Common Estate Planning Mistake Easy To Fix

There is one estate-planning mistake that you could be making right now that could have devastating effects on your family after you pass. However, it’s an easy mistake to fix.

Review beneficiary designations

Retirement accounts and life insurance policies commonly use beneficiary designations. Social Security survivor benefits are different: eligibility is determined by federal rules rather than by a beneficiary you name. Source: Social Security Administration: survivor eligibility. Review the beneficiary records for each account and policy instead of assuming that every asset uses the same process.

Beneficiary designations can control who receives an account or policy at death, but they do not invariably override every other document. The result depends on the asset, governing documents and applicable law. Washington permits certain specific will provisions to redirect covered nonprobate assets despite an earlier beneficiary designation, subject to statutory requirements and exclusions. That exception does not cover life-insurance payable-on-death provisions, employee-benefit plans or IRAs. Sources: RCW 11.11.010(7); RCW 11.02.005(14). Retirement-plan rules and spousal rights may also affect the result. Review your will and beneficiary designations together, including accounts left with former employers, especially after marriage, divorce, a birth or a death. Updating your will does not automatically update the beneficiary records for a 401(k). The plan’s terms, applicable law and any spousal rights must also be considered. Source: U.S. Department of Labor: retirement-plan beneficiary and spousal protections. A power of attorney serves a different purpose: it may authorize an agent to handle specified matters during your lifetime and terminates at your death. Sources: RCW 11.125.140(1)(c); RCW 11.125.100(1)(a).

Official resources: IRS: retirement-plan beneficiaries; RCW 11.11.020: disposition of nonprobate assets under a will.

When a primary beneficiary dies first

If your primary beneficiary dies before you, review and update the designation. Check whether a contingent beneficiary is named and what the account, policy or plan provides if no designated beneficiary survives. Those terms and applicable law determine who receives the asset and whether it is payable to your estate.

Keep beneficiary records up to date

So what can you do to make sure all your beneficiaries are updated? Check all your documents every few years to ensure that your beneficiaries match. Review them again after a major life event, such as a birth, death, divorce, or marriage. It’s also smart to have a secondary beneficiary listed no matter what the age of your primary beneficiary.

Related reading: Estate planning for new parents.

As your attorney, I can help you review how your real estate, financial accounts and other assets fit into your estate plan and identify steps intended to carry out your wishes. We can discuss the available transfer methods, administration requirements and potential costs based on your circumstances.

Over the past 34 years, the Law Offices of Christopher A. Benson has helped clients with estate planning. Contact our Federal Way office for a free initial consultation to discuss your goals and planning options.