Q&A – Don't Let Your Legacy Slip Away: The Importance of Updating Beneficiary Designations

Question:

My fiancé passed away and intended to leave me his entire estate. But he forgot to change the beneficiary designation on his investment account from his son, whom he intended to disinherit. Now, the investment company is saying I need a court order saying that I am entitled to the funds or else I can’t have them at all. Is there anything I can do to get the money that should be mine?

Answer:

As an estate planning lawyer, I've witnessed firsthand the importance of meticulous attention to detail when it comes to safeguarding your assets and ensuring your loved ones are provided for the way you intended. However, even the most comprehensive estate plans can be undermined by a simple oversight: forgetting to update beneficiary designations on retirement accounts, investment accounts, and bank accounts.

Why?

The short answer here is that certain accounts that list a beneficiary are non-probate assets. That means that when a person passes away, the title to the account automatically transfers to the named beneficiaries via a contract with the financial institution. So, the account never enters probate because the court does not need to oversee the transfer of title. If this happens, there is usually nothing to be done after the fact.

Many people diligently establish beneficiary designations when they first open these accounts, often naming spouses, children, or other family members as beneficiaries. However, life is dynamic, and circumstances change. Marriages dissolve, families grow, relationships evolve, and unfortunately, loved ones pass away.

Failure to update these designations effectively means that the individual(s) you wanted to have those accounts may now shut out of ownership.

Consider this scenario: You divorce and remarry, but forget to update the beneficiary designation on your 401(k) plan. Upon your death, your ex-spouse, rather than your current spouse, stands to inherit the proceeds of your retirement account. This unintended outcome can lead to bitter legal battles and financial hardship for your rightful heirs.

Similarly, failing to update beneficiary designations after the birth or adoption of a child can inadvertently disinherit them from receiving the assets you intended to pass on to them. Moreover, overlooking beneficiary designations altogether can result in your assets being subject to probate, potentially delaying the distribution of funds to your heirs and incurring unnecessary expenses.

To avoid these pitfalls, I advise my clients to review their beneficiary designations regularly, preferably annually or whenever a major life event occurs. Make it a habit to check and update beneficiary designations on all relevant accounts, including retirement plans, life insurance policies, investment accounts, and bank accounts.

Additionally, communicate openly with your loved ones about your estate plan and ensure they are aware of the beneficiary designations you have in place. This transparency can prevent confusion and conflict down the line, ensuring your wishes are carried out as intended.

Crafting a comprehensive estate plan is essential, but it's equally crucial to regularly review and update beneficiary designations to align with your current circumstances and intentions. By taking proactive steps to maintain accurate beneficiary designations, you can protect your legacy and provide peace of mind for yourself and your loved ones.