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Financial Fact or Fiction: Wills and Beneficiary Designations

  |   Estate Planning, Financial Fact or Fiction

Fact or Fiction

 If you have a will, you don’t need to worry about beneficiary designations on your retirement accounts.

FICTION!

A friend recently asked me why he needs to be concerned about his retirement account beneficiary designations if his will has recently been updated to accurately reflect how he wants his assets distributed. In his mind, it doesn’t matter what he listed on the account forms because his will is the legal document.

While it is great that my friend has a will, he was mistaken about the relationship between the beneficiaries designated in his will and the beneficiaries designated on his retirement accounts (and, for that matter, beneficiaries designated on any asset).

The beneficiary designation listed on an account or insurance policy dictates who will receive the asset, regardless of what is written in a person’s will.  For example, if my friend left his assets equally to his three children in his will, but his IRA beneficiary designation lists his sister, his sister will receive the IRA, and there is not much the children can do about it.

Now, what if my friend’s sister predeceased him and…

  • He named his sister as the sole beneficiary and checked the “per stirpes” box next to her name on the beneficiary form? Then, upon his death, the account would pass to his three children, correct?  No!  By checking the “per stirpes” box next to his sister’s name, he designated his sister’s descendants as the contingent beneficiaries.  As a result, his nieces and nephew will inherit the assets.  This is probably not the intended result!
  • He designated his sister as the sole beneficiary, he did not check the “per stirpes” box next to her name, and he did not designate any contingent beneficiaries? In this case, the assets would be distributed per the terms of the IRA custodian’s default provisions, which may or may not lead to an eventual distribution of the assets per the terms of my friend’s will.

You, like my friend, likely worked hard to build your assets and want to be the one to decide how they will pass at your death. When was the last time you reviewed the beneficiary designations on all of your accounts, life insurance policies, and annuities and compared it to the beneficiaries in your will (or, if you have a revocable living trust, your trust)?  If you don’t remember, make it a point to do so now.

 

AUTHOR - Tammy Wener

As co-founder of RW Financial Planning, Tammy oversees the financial planning process for all clients and manages the day-to-day operations of the firm. She truly enjoys getting to know her clients and is not shy about asking questions. Tammy has 15+ years of experience in the financial planning and estate planning fields and has worked with a broad range of clients including: couples simultaneously planning for financial independence, caring for their parents, and saving for college; newly widowed and divorced women looking to become more financially literate; young couples just starting out; families juggling the demands of a child with special needs; and financially independent individuals and couples exploring “what comes next.”



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