Upheld by the United States Supreme Court in 2001, your beneficiary designations on insurance policies, IRAs, and other retirement accounts will override the inheritance wishes you have expressed in your will in case of differences between the two.

Many people tend to worry about savings and purchases.  We’ll even make a big deal about tipping (several dollars) or saving 5 cents on gas (less than a dollar!)  While those decisions do add up, they reflect a small percentage of our assets.  Our estate decisions require 100% stewardship.  We leave it all behind.  Such important decisions need regular updating.

Wills and trusts are extremely important estate planning tools and they receive much deserved focus in the estate process.  However, a will or trust is only one tool in an estate plan. One of the most overlooked tools is connected to many accounts.  Beneficiary designations are linked to life insurance, annuities, IRAs, 401(k)s, and pensions.  A beneficiary designation determines who gets the asset.  Here is an example of how critically important a beneficiary designation can be:  If a man’s will states that his desire is for his wife to inherit all of his assets at his death, but his existing beneficiary designations linked to his insurance policies, IRAs or retirement assets still have his ex-wife listed, the ex-wife will get the funds.  A beneficiary designation trumps what is written in a will. 

This was affirmed by a 2001 U.S. Supreme Court ruling, Egelhoff v. Egelhoff, which upheld the award of a man’s 401(k) plan assets to his ex-wife rather than to his children, since Mr. Egelhoff had failed to change his beneficiary designation following his divorce. This is why it’s incredibly important to update your beneficiaries.  We recommend you check them every 3-5 years or when you go through a major life change: the birth of a child, a marriage, a divorce or a death in the family can all signal a need to update beneficiary designations on your policies and investments. Many wills and trusts create provisions to provide some degree of flexibility during life changes, but beneficiary designations have very limited flexibility with regard to inheritance rights.

It is important to designate both primary and contingent beneficiaries on every policy and account.  Those listed as a primary beneficiary will be first in line to receive the assets, while contingent beneficiaries will only receive money if all the primary beneficiaries predecease the owner.  You should still fill in names/charities in every slot to prepare for unforeseen circumstances.  You cannot plan your death, but you can prevent unwanted inheritance and taxation (more on this later) disasters from occurring after you die! Give us a call, and let’s have a conversation.