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Beneficiary Designations Complete Estate Plan Puzzle

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[The following article was written by Patti Jo Turner, a Case Manager with Marshall, Parker and Weber since 1998.]

 It has been said that a good estate plan is like a puzzle, with all the different pieces fitting together to make the picture you want.  The most easily identified piece of the estate puzzle is your Will.  Tucked neatly next to your Will are your Power of Attorney and Health Care Directive.  And perhaps you have a trust. Most people think these are enough pieces to complete their estate planning picture – but an important part is still missing.

Beneficiary designations are an often forgotten part of estate planning.  Beneficiary designations appear on life insurance policies, annuities, and retirement plans.  It is typical for married couples to name each other as their primary beneficiary. That’s fine, but it is not enough.  It’s also important to look at the contingent (or secondary) beneficiary.  In other words… Who gets the asset if your spouse pre-deceases you?

If you fail to name a contingent (or secondary) beneficiary, the benefit may pay to your estate and be distributed according to the provisions in your Will.  This may have many negative implications for your beneficiaries, especially if retirement plan benefits are involved.

If you have named your children as contingent beneficiaries, good for you!    But have you considered what will happen to your daughter’s share if she predeceases you?  You may want her share to go to her brothers and sisters, or maybe to her children.  The default language in the contract will make that decision for you if you don’t spell it out.  Default provisions will usually pay a deceased child’s benefit to the other named children, leaving out grandchildren. Your deceased daughter’s children will get nothing. Is that what you want?

There is an additional reason to pay close attention to the beneficiaries on your tax deferred retirement plans.  Benefits that pass to named beneficiaries can usually be stretched out over the lifetime of that beneficiary, which means income taxes can be deferred.

Gather your paperwork and call your financial planner or agent to check that your beneficiaries are up to date.  Ask what happens if one of your beneficiaries dies before you.  Ask how to go about making changes, if necessary.   With those answers, you will have “enough” pieces to declare your puzzle complete.

Patti can be contacted at webmail@paelderlaw.com or at 1-800-401-4552