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One of the most common misconceptions about estate planning is that simply having a Will or Trust automatically controls how all of your assets pass when you die. The reality is that assets passing to one or more named beneficiaries pass completely independently of your Will. That means that life insurance, annuities, retirement accounts, bank accounts with POD (payable on death) beneficiaries, and investments with TOD (transfer on death) beneficiaries pass to whomever is named – no matter what your Will says. The account holders are contractually bound to honor your written beneficiary designations.
A recent MarketWatch article explored three horror stories where people’s assets didn’t pass the way they intended, all because the account owners had not updated their beneficiary designations to reflect their current wishes.
- John Wayne Hunter died in 2005, preceded in death by his spouse. By all accounts and by all available evidence, Hunter intended to leave everything to his stepsons. However, his pension plan administrator declined to treat the stepsons as children, meaning the assets passed instead to Hunter’s siblings.
- After a divorce, a man intended that his son and daughter from a previous marriage would inherit all of his assets. However, his ex-wife was listed as his life insurance beneficiary and she ended up inheriting, rather than his kids.
- In another divorce case, a man believed his divorce decree was the final word on how assets would pass when he died. That document included a waiver from his ex-wife, stating she didn’t have an interest in the man’s company retirement account. Unfortunately, he never followed through with updating his beneficiary designation on the retirement plan account. When he died seven years after his divorce, his ex-wife inherited $400,000 from the account due to his failure to file a new beneficiary form.
Check out the full article for more details about each of these unfortunate cases.
As life events occur, including a birth, death, marriage, or divorce, it’s important to update your Will or Trust and your beneficiary designations. To learn more and for help creating a plan that incorporate all of your assets and reflects your wishes, contact us today!