“Now remember Mr. Smith, your new will only is effective for the assets that are part of your probate estate. I know you have substantial value in your retirement plan, here is some language you can use to make the beneficiary designation of your 401k and your IRA pass in the way you’ve indicated you wish them too.” said Ima Lawyer, the estate planning attorney Mr. Smith had been working with to get his estate planning in order.
“Don’t worry Ima, I’ll get to those this week, how great to have my planning rock solid and in place!” Mr. Smith responded, his eye straying to the nearby clock.
Guess what. Mr. Smith never did change his beneficiary designation. In fact he forgot all about them and some years later in a discussion told me enthusiastically that his will was in order and his estate plan firmly in place. The beneficiary designations on his 401k and other retirement plans were still for his ex-wife Sally, with his children named as contingents.
This story ended happily, with some additional research and him taking steps to correct the designations and move his children to be his primary beneficiaries. But oft times this all too common tale doesn’t end that way and an unexpected death wreaks havoc because of poor follow through or plain misunderstandings about what assets are controlled by a will or trust and what role a proper beneficiary designation plays in an overall estate plan.
One of our favorite columnists, Jason Zweig of WSJ, tackles this subject in his latest article, When Your 401k Has a Bad Heir Day. It’s worth a read. Oh, and after you’ve finished it might not be a bad idea to take a peek at your own beneficiary designations!