For numerous New Jersey residents, estate planning does not end with wills and trusts. Most retirement accounts — including IRAs — life insurance policies and annuities are not governed by those documents. They require the account owner to fill out a beneficiary designation, but if an individual is not careful, beneficiaries may not receive the inheritance intended for them.
A beneficiary designation form is often filled out when an account is opened or an insurance policy is purchased. After that, many people forget about the forms. As the months and years go by, a person may experience several life-changing events such as marriage, divorce or the birth of children, and he or she may make changes to his or her estate plan accordingly.
However, it can be easy to forget to make changes to these accounts or to believe that changing a will or trust will effect a change to the accounts. Unfortunately, that is not what happens. Regardless of what an individual’s will or trust may say, the beneficiary designation form governs who receives the proceeds from the account or policy. Many ex-spouses have ended up inheriting money due to this oversight.
These forms also often allow the appointment of a contingent beneficiary. This is the person who inherits the account or policy in the event that the primary beneficiary is unable to inherit, such as if that person died before the account owner. Without an alternative, it may not be clear where the proceeds will go.
One of the primary goals of estate planning is to ensure that a person has the power to determine to whom his or her assets will be distributed upon death. Anyone in New Jersey who has accounts or policies governed by beneficiary designations would benefit from a periodic review of those forms — especially if a major life event occurs. Making sure the proper beneficiaries will receive these accounts that pass outside of a will or trust will keep that power with the individual.
Source: investingdaily.com, “Key Estate Planning Mistakes You Need to Avoid“, Bob Carlson, July 24, 2014