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A common estate planning mistake to avoid

by | Sep 25, 2013 | Estate Planning |

Many Florida residents may be unaware that some or all their estate is in danger of going to someone to whom they have no intention of giving any of it to. Because federal estate taxes only affect those with an estate larger than $5.25 million, many may feel that their estate is safe and will go to their heirs as they plan. However, not taking the time to designate who the beneficiaries are for retirement plans, life insurance plans, bank accounts and other financial holdings can often lead to terrible consequences for one’s heirs.

The problem arises when someone dies and hasn’t designated or updated the beneficiaries for these assets. In those cases, an ex-spouse may be in line to receive the proceeds from a pension plan or a life-insurance policy. In fact, in 2001, the Supreme Court ruled in one such case that the designation of the ex-spouse as the beneficiary trumped the state law that automatically disinherited the ex. In 2008, the Supreme Court ruled in another case that the beneficiary designations trumped an agreement in a divorce in which a man’s ex-wife waived any claim to his plans. She ended up getting $400,000.

Another problem can arise when a parent plans to give one adult child more than another because he or she disagrees with life choices one child has made or if one child has more children or other financial difficulties. Designating beneficiaries is often a necessary step to insure one’s estate goes to his or her heirs as he or she intended.

As the Supreme Court cases discussed in this story show, not having up-to-date beneficiary designations for important financial interests can often trump what individuals put into their wills or divorce agreements. While having a will is important, keeping the beneficiary designations up to date on these accounts can save one’s heirs a good deal of hardship later on and should be considered an important part of the estate planning process.

Source: Market Watch, “Don’t make this common estate-planning error“, Bill Bischoff, September 17, 2013