Don’t Forget to Review Beneficiary Designations

Even a well tuned estate plan can be defeated by failing to update beneficiary designations for bank accounts, brokerage accounts, and qualified plans (such as IRAs). Here are some points to consider:

  1. If a designation is made, it will ordinarily pass outside of your trust or will. Therefore, even it your will says something like “I hereby give my ABC brokerage account to my beloved daughter, Sheri Doe,” if your account designation gives the account to your ex-spouse, your ex-spouse probably receives the gift.
  2. The preceding point also shows that account designations should be regularly reviewed.
  3. If an account designation gives money to a minor, it may be necessary to open up a court supervised guardianship (which is the case in California). In such a case it may be less costly to set up a trust to manage the funds on behalf of the minor, and make the trust the beneficiary.
  4. If the beneficiary has a disability and meets needs requirements for governmental assistance, a gift under a beneficiary designation may cause disqualification for the benefit. However, creating a third party special needs trust, making the trust the beneficiary, may circumvent this problem.

In short, you should review your designations regularly, and make sure that they blend in with the rest of you estate and financial planning. Otherwise, your intended and unintended beneficiaries may end up being surprised – sometimes pleasantly surprised, but often times unpleasantly.


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