There's a typical estate planning mistake that catches many American families by surprise. It involves the beneficiary designations that are often attached to financial accounts. Your individual retirement accounts (IRAs), your 401(k)s and your insurance policies probably have beneficiary designations, a form that you fill out to state who will receive the assets contained in these accounts after you die.
The problem is, a lot of people don't realize how important these beneficiary designations are. The information provided on these forms will supersede any information you have included in your will.
Let's say, for example, that you were married for 10 years and -- when you created your 401(k) account -- you naturally listed your then-wife as the beneficiary on all of your beneficiary forms. You also listed her as the sole heir of your estate in your will. Later, you got divorced and updated your will to ensure that your sister received all of your estate. However, you failed to update your beneficiary forms and your 401(k), which contained the majority of your estate assets.
If you die, your ex-wife will receive all of your 401(k) account, even if your will clearly indicates that your 401(k) should go to your sister. Whatever the will says, the beneficiary designation on your financial accounts will supersede the language of the will.
Do you need to check your beneficiary designations to ensure that they align with the rest of your estate planning documentation? An Arizona family law and estate planning attorney can help. Your lawyer will review your family's situation, your estate planning documentation and your financial accounts to ensure that your asset distribution plan will be followed after you're gone.
Source: Market Watch, "Make this estate planning move right now: Check your beneficiary designations," Bill Bischoff, June 30, 2017