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The importance of up-to-date beneficiary designations

People in Colorado who are creating an estate plan must also pay attention to beneficiary designations. It can be easy to forget about these. One woman, who is a financial professional, did not realize until she transferred an IRA to another investment company that she had neglected to change the beneficiary on the account when it would have been prudent to do so.

The woman had divorced when her children were young. At the time, she made her father the beneficiary on her account so he could take care of her children in the event of her death. It was not until after her children were grown and her father had remarried that she discovered that she hadn't designated a more appropriate beneficiary. She made this simple error despite advising others regularly on estate planning.

One advantage of having beneficiaries on accounts is that the asset passes directly to those beneficiaries instead of being delayed in probate. To find out who the beneficiary is on an account, the owner simply needs to call the investment firm's customer service department. Changing the beneficiary may require filling out a new form. If the former beneficiary is a spouse, the company might need the spouse's signature.

Beneficiary designations override what a person writes in a will or a trust, so it is particularly important that designations are regularly reviewed to ensure that they remain up to date. If there is a conflict between the two, the beneficiary designation will stand. There are other considerations as well: For example, a person may need a will even if there are only a few assets. In some circumstances, a trust can be useful in an estate plan as well. For example, if a beneficiary is irresponsible with money, the trust can specify when the person receives distributions.

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Samuel J. Owen, P.C.
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