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Be careful when creating a beneficiary designation

On Behalf of | Apr 2, 2020 | Estate Planning

If you have a 401(k), IRA or other type of retirement or financial account, it may be possible to attach a beneficiary designation to it. This allows family members or others in Indiana to inherit any money that was in those accounts when you pass. However, it is important to understand the potential estate planning issues that using a beneficiary designation could cause.

Remember to update your designations

Say that you have a 401(k) with an employer that you haven’t worked for in years. You may have decided to leave the account as is instead of rolling it over because you were happy with the returns it generated. However, over the years, you may have forgotten to update the beneficiary designation form associated with that account. This could mean that a former spouse or deceased parent is still listed as the beneficiary.

Beneficiary designations trump language in your will

A beneficiary designation typically overrides any instructions that you leave in your will. This is because the will only applies to assets within a probate estate. Assets that transfer to another person through a beneficiary designation are held outside of the probate estate. Ultimately, there is nothing that a probate judge or anyone else can do to prevent those assets from being transferred after you pass.

Make sure to review your estate plan regularly

An easy way to keep your estate plan in order is to review it every three to five years. Doing so can prompt you to update beneficiary designations or take other actions to ensure that plan documents are structured to meet your needs. It may also be a good idea to review an estate plan after a major life event like a divorce or a death in the family.

If you need help creating or reviewing an estate plan, it may be a good idea to consult with an attorney. He or she may help ensure that documents are structured in accordance with state law and that plan documents meet your needs.