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Failure to update a California estate plan is costly to heirs

On Behalf of | Feb 22, 2013 | Estate Planning |

Many wage earners spend decades building carefully-monitored retirement incomes while giving remarkably little consideration to beneficiary details. California estate planning attorneys see frustration and anger among heirs when proceeds from a decedent’s beneficiary-related fund end up in the wrong hands.

Time and time again, estate planning experts caution clients to update wills, trusts and investment accounts. The inheritance preparation process is not complete until an individual’s wishes are expressed clearly and consciously in all pertinent legal documents.

Some estate plans focus so hard on the protection of assets that naming heirs and beneficiaries seems like a secondary function. In fact, keeping the channel of inheritance open to the proper heirs is vital.

Forgetfulness is blamed for failing to confirm a beneficiary’s name or neglecting to change a beneficiary after the end of a marriage or the start of a new one. Another costly mistake occurs when a beneficiary dies first. Legal advisers recommend estate plan updates with every life-changing occurrence – birth, death, adoption, marriage and divorce.

What happens when a will is updated after remarriage but an individual retirement account beneficiary is not? A long-past beneficiary decision takes legal precedence. Ex-spouses and their heirs often inherit IRA account funds meant for a decedent’s later spouses and children.

Sometimes an estate is the beneficiary of an IRA account, either purposely or by default when there is no designated beneficiary. Individual beneficiaries can opt to receive minimum distributions or cash out the taxable IRA account – flexibility that beneficiary estates do not have.

Naming an estate as an IRA beneficiary can delay proceeds for heirs caught up in probate and open the funds to creditors with claims against the estate.

Mistakes during estate planning – forgotten beneficiary forms and ignored update to documents – can be avoided with the guidance of an experienced attorney. Individuals should remember that legal advice must be implemented for it to be effective.

Source: foxbusiness.com, “Five Biggest Mistakes Not to Make on Beneficiary Forms,” Shelly K. Schwartz, Feb. 11, 2013