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Beneficiary
Designations Complete Estate Plan Puzzle
Written By:
Patti Jo Turner,
Marshall,
Parker & Associates'
Estate Planning Paralegal
Originally
published on June 29, 2006
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 pieces
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.
Who gets the asset if your spouse is deceased?
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.
Only then can you declare your puzzle complete.
Patti
can be contacted at webmail@paelderlaw.com
or at 1-800-401-4552
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