Should I Include My Retirement And Investment Accounts in My Estate Plan?

Should I Include My Retirement And Investment Accounts in My Estate Plan?

Probate is the court-supervised process of gathering your assets, paying off your debts and taxes, and distributing what’s left of your estate to your heirs and beneficiaries. However, that doesn’t have to include all assets.

Your retirement and investment assets have the potential to bypass probate if located in the type of accounts that can transfer upon death to a designated beneficiary. When considering whether to include your retirement and investment accounts in your estate plan, here’s what you need to know.

The Difference Between a Beneficiary Designation and Your Will

Beneficiary designations that bypass the probate process are subject to unique federal and state rules and, in almost all cases, override a will. Accounts allowing beneficiary designations typically include IRAs, 401(k)s, 403(b)s, and some less common types of retirement accounts.

When you open a retirement account, part of the paperwork includes naming beneficiaries. At the time of your death, the financial institutions, referred to as custodians, must disperse those assets to the named beneficiaries.

The contract between the account holder (you) and the custodian replaces the will, keeping the accounts out of probate. 

5 Common Mistakes To Avoid With Beneficiary Designations

When faced with making beneficiary designations, people often make the following mistakes.

Failure To Name a Beneficiary

People may forget or never get around to filling out the forms. If you do not name a beneficiary for transfer upon death accounts, then the proceeds will be paid to your probate estate.

Failure To Designate an Alternate

Another way your designation can fail is if you forget to name an alternate. If your primary designation fails and there is no named alternate, your account’s proceeds will fall into your probate estate.

Failing To Update Your Designation

Your retirement accounts can end up probate if your designated beneficiary is no longer alive. The custodian will not pay the heirs of your deceased beneficiaries. Instead, the designation fails, and your account will fall into probate.

Failing To Update Your Beneficiary Designation if You’re Separated or Divorced

Another frequent mistake is forgetting to update your beneficiary designation if you’ve separated or divorced your spouse.

In Hillman v. Maretta, 59 U.S. 483, Warren Hillman was a federal employee who died in 2008 at the age of 66 with a life insurance policy worth $124,558.03. Mr. Hillman divorced his first wife and remarried. Mr. Hillman, for whatever reason, failed to change his beneficiary designation after divorcing his first wife.

His second wife sued. The U.S. Supreme Court decision stated that beneficiary designation prevails and the first wife received all of the life insurance proceeds. 

Naming the Wrong Beneficiary

Sometimes individuals fill out their beneficiary designation forms incorrectly.

For instance, multiple people in a family can have similar names (such Sr., Jr., and III). But the beneficiary designation form may not have enough space or be specific enough for the person completing it to include such details. As a result, these details inadvertently get left out.

Similarly, when individuals change their names over time through marriage or divorce, it can cause added confusion. 

Key Takeaways

The purpose of beneficiary designation on transfer upon death accounts is to ensure you have an ultimate say over who will get your assets when you’re gone.

Taking the time to select your beneficiaries carefully and then periodically reviewing those choices and making any necessary updates allows you to stay in control of your money.

Call our office today. Our attorneys can help you with all of your estate planning needs.

STAY UP TO DATE

Subscribe to our newsletters

 
Subscribe to one or more of our newsletters, delivering meaningful insight on topics that matter to you and your family.
ebl home subscribe image

FURTHER READING

Latest Blog Posts

Child support is one of the most contentious issues in divorce cases where parties have minor children. Even though Washington state law uses the same complex mathematical formula to determine the amount of child support for each child, there is…

Family law and estate planning often intersect. This is particularly true when contemplating divorce, remarriage, or blending families.

At some point during your divorce case, friends and family members whose own marriages ended in divorce probably told you that it gets better, and it does. Of course, from your perspective, getting out of a bad marriage might be…

Co-parenting over a long distance when you are a non-residential parent does not have to equate to sacrificing involvement in your children’s lives. But it likely does mean you will have to make tweaks in your communication and parenting style to accommodate the new living arrangement.

If you have a significant amount of money saved, you might be considering giving some of it away while you are still alive via what is known in estate planning jargon as a living inheritance. Depending on your desires, you can give your beneficiaries a portion of or all of the inheritance you intend to give them.

Estate planning is commonly associated with preparing for asset distribution and financial management in the event of the estate plan owner’s incapacitation or death. However, an estate plan can protect more than just people and what they have worked so hard during their lifetimes to build. A carefully crafted Washington state estate plan can also protect pets.

Despite being divorced, you may still be able to collect social security benefits through your ex-spouse. Even if you went through a high-conflict divorce or are not on good terms with your ex-spouse currently, they cannot stop you from collecting these benefits if you are eligible. Likewise, your ex-spouse does not need to permit you to apply for social security benefits or have previously completed an application themselves.

If you live in Washington State and have an estranged family member, are you worried about them contesting your will after you die? Well, don’t worry quite yet. There are a variety of criteria an individual must meet to contest a will in the state of Washington.

Depending on your situation, there might also be measures you can take as you revisit your existing estate plan or create a new one to cause them to think twice about doing so. Here is what you need to know about whether an estranged family member can contest a will in Washington state.

When parents go through a divorce, child custody can be one of the hardest issues to deal with. But increasingly in American households, pets are part of the family, and separating can create similar concerns over who gets the family pet.

As a Seattle entrepreneur, you’ve undoubtedly dedicated countless hours and resources to building a successful business. You’ve dotted all of your I’s and crossed all of your T’s. But have you considered what will happen to your business after you're…