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Estate planning includes updating beneficiary designations

Estate planning in Texas includes making sure that all insurance, investment and retirement proceeds have the proper beneficiary designation. An outdated set of beneficiaries on such accounts could cause a post-death disaster for one's loved ones. They may be left without valuable resources because the owner of the accounts ignored basic estate planning concepts and procedures.

For example, if an individual is divorced and later remarries, he or she may take action to issue a new will with the new spouse as a beneficiary of the estate. However, life insurance and many types of investment and retirement accounts go to the beneficiary listed on the policy or the plan. When the owner dies, the beneficiary is paid the proceeds even if it is not the current spouse. The beneficiary designation on the policy or plan  trumps the provisions in the new will.

One exception is where there is no beneficiary because that person has died and no replacement has been selected. The proceeds will normally be paid to the decedent's estate and be distributed according to the most recent will. That will get the proceeds to the right person but may exact a penalty in the form of an estate or inheritance tax. In that instance, the decedent has lost one of the benefits of life insurance and retirement accounts, which is that the funds generally go to the listed beneficiary and not to the estate, thereby avoiding estate tax and other paperwork consequences.

A careless mistake with respect to beneficiaries could be devastating and could massively reconfigure what the decedent thought he or she was doing to protect loved ones. Of course, it could have simply been avoided by not only issuing a new will with the corrections included, but also by contacting each company with a policy or investment plan and providing notice to change the name of the beneficiary and alternative beneficiary accordingly. This highlights the basic importance of reviewing and changing beneficiaries on all accounts on a regular basis. These basic rules of beneficiary maintenance are a key aspect of estate planning in Texas and all other states.

Source: wmur.com, "Money Matters: The trump card of estate planning", Marc Hebert, May 21, 2015

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