There are multiple components to a complete estate plan. An up to date last will and testament is certainly an essential component, but it is not the only one. It is also important to ensure you have updated and coordinated beneficiary designations.
Many types of financial assets allow you to name beneficiaries directly, including life insurance, retirement accounts (IRAs and 401(k) accounts, for example), annuities, brokerage accounts, and bank accounts. Most financial institutions will allow you to name both primary and contingent beneficiaries. A contingent beneficiary would inherit the asset if your primary beneficiary predeceased you.
Upon your death, the named beneficiary is entitled to receive the asset and it will not pass through your last will and testament. This typically avoids probate for that particular asset. But it also means that if you only updated your last will and testament to change beneficiaries, that does not automatically change the beneficiary on your life insurance or retirement accounts.
Often the beneficiary designation is handled in the account opening documentation. Over time this can become outdated, and it is important to periodically review and update your beneficiary designations.
For retirement accounts, beneficiary designations have tax consequences to consider as well. If no beneficiary is designated on a retirement account, upon your death it may be necessary for your estate to pay taxes on the entire account shortly after your death, rather than continuing to defer it over an eligible beneficiary’s lifetime. In most circumstances, naming individual beneficiaries (or a trust for their benefit) will be beneficial tax-wise.
For many, financial assets with beneficiary designations (such as retirement accounts and life insurance) comprise a substantial portion of their assets. It is essential to make sure that your beneficiary designations are updated and coordinated with your overall estate plan. The experienced estate planning attorneys at Kurre Schneps can help guide you in creating and maintaining a comprehensive estate plan, including beneficiary designations. Contact us today to schedule a consultation.