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Estate planning tips: Remember to update beneficiary designations

Beneficiary designations listed on financial accounts can supersede anything written in a last will and testament. Even if a will is redrafted after a divorce, if the beneficiary designation on a 401(k) account is not updated to remove the ex-spouse, then the ex-spouse could ultimately inherit the contents of the 401(k) in the event of the account holder's death. Although it may seem unfair, this is how Texas estate planning law works. Therefore, it is important to remember to review beneficiary designations periodically to ensure they are accurate.

When reviewing accounts to ensure that beneficiary designations are accurate, be sure to review the following types of accounts: individual retirement accounts, qualified retirement plans like 401(k)'s and employee stock option plans. Also, periodically review beneficiary designations on deferred compensation plans and employment contracts. The beneficiary designations on these kinds of accounts will trump anything mentioned in a will.

To ensure that an estate plan is complete, estate planners may want to seek professional guidance to determine whether a particular asset is ultimately covered. Another thing to consider is the naming of both primary and secondary beneficiaries. The secondary (or contingent) beneficiary will inherit the assets in the event that the primary one is unable to as a result of death.

Finally, after making a change to a beneficiary designation, it may be wise to obtain confirmation that the change was made from the financial institution that manages the account. Texas residents should make a copy of any beneficiary documentation and confirmations of beneficiary changes. Keeping these estate planning documents in a place that will be easily found by heirs will be particularly helpful to them in the event of an untimely or unexpected death. 

Source: wealthmanagement.com, "Error in Planning Can Benefit the Ex-Spouse", June 1, 2015

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