By Jeremy A. Wechsler, Esq.
Investment Advisor Representative
[email protected]
Most people assume that once they’ve signed a will or a trust, their estate plan is complete.
In reality, a lot can slip through the cracks — and one of the biggest traps is outdated or incomplete beneficiary designation forms.
When you set up a retirement account (IRA, 401(k)), annuity, life insurance policy, or other types of accounts, you’re usually asked to name a beneficiary. Most of the time, the form is straightforward and little thought is given beyond simply getting it done. But as years go by, life changes, and that “simple form” can quietly undo all of your careful planning if it’s not updated.
Beneficiary designations are powerful. I often tell clients that each beneficiary form is a Last Will and Testament for that particular account. These forms are legal documents — and they always override your will.
If you have three children but name only one of them on the form, it doesn’t matter if your will lists all three children. The beneficiary form wins.
Although most clients tell me they are confident their beneficiary forms are updated and reflective of their wishes, problems happen more often than you might think.
I recently saw a situation where there was no beneficiary listed — and unfortunately, no will either. The husband predeceased the wife, and his IRA passed into his estate. Two major problems followed:
- The husband had outstanding debt, and once the estate was created, that debt had to be repaid out of the IRA (whereas if the spouse had been named directly as beneficiary, the IRA would not have been subject to creditors in Pennsylvania).
- Because the husband left behind a wife and children, the inheritance was automatically divided among them — instead of passing entirely to the wife.
It became a real mess.
A few reminders as you think about your own planning:
- Beneficiary forms should be reviewed after major life events — marriage, divorce, births, deaths.
- Retirement accounts, life insurance policies, and payable-on-death accounts all have beneficiary designations that need attention.
- For young or minor beneficiaries, additional planning (such as setting up a trust) is often recommended.
At Franklin Retirement Solutions, we make sure every piece of your plan — including the ones people tend to forget about — fits together the way it should.
If you haven’t reviewed your beneficiary forms in a while, now might be the perfect time. I’m always here if you have questions.