Beneficiary Designations: Do Houston Families Update Key Documents?

New baby blocksYou may have made a giant estate planning mistake without even knowing it — forgetting to update the names of your beneficiaries for your employer-sponsored retirement plans, IRAs, life insurance policies, mutual funds, bank accounts, brokerage accounts, annuities and 529 college savings plans.

The recent MarketWatch article, titled “Don’t make the No. 1 estate-planning goof,” outlines several reasons for updating your beneficiary designations. Here are a few:

  • A change of jobs. A job change can mean that you will need to roll over your retirement plan. If this happens, beware! Moving money from your former employer’s retirement plan into your new one or into an IRA could eliminate your beneficiaries’ claims to those assets. You should make sure you have them as beneficiaries on the new account, too.
  • Your primary beneficiary died. If this happens, it is a 100% no-brainer that you need to change your designation and speak with your estate planning attorney regarding any changes required in your estate plan as a result.
  • A change of ownership at your financial institution. This is not as uncommon as it used to be: banks and other financial institutions merge on a regular basis. When they do, they have been known to drop the ball when it comes to the beneficiary designations of older accounts.
  •  A new child or grandchild. Do not designate a minor. If you do, a conservatorship will be set up by the state to protect the assets until the child reaches the age of majority. In this instance, a trust is the way to go for his or her benefit (with the trust as the beneficiary), so that the child can inherit your financial assets, and you will control the terms under which he or she can gain access to the funds. This is tricky business, however, and you need to work closely with your estate planning attorney to avoid potential tax pitfalls.
  • A beneficiary became disabled. This situation means you should change the designation or be in jeopardy of canceling his or her eligibility for Social Security’s Supplemental Security Income (SSI) benefits. Ask your estate planning attorney to create a Special Needs Trust for the disabled person's benefit and make the trust the beneficiary on your accounts.

The original article discusses several other situations when it is a good idea to update your beneficiaries. After reading the full article, consider contacting your estate planning attorney with any questions.

For additional information on estate planning and beneficiary designations in Houston, please click here to visit my website.

Reference: MarketWatch, Jan. 23, 2014: Don’t make the No. 1 estate-planning goof


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