Beneficiary Designations – American Academy of Estate Planning Lawyers


Clients spend a lot of time, money and energy planning their properties. Estate planning attorneys assist them by advising these clients and preparing various documents to meet the client’s goals, such as a will or trust.

Often the client forgets to mention it and the attorney forgets to ask about the assets that go through the assignments to the beneficiaries. This could be disastrous for everyone involved.

A growing portion of American wealth is governed by beneficiary designations. According to Statista, Americans had more than $32 trillion in retirement assets alone. That’s a trillion with the letter “t”.

This blog series will focus on beneficiary assignments. This first blog in the series focuses on one of the risks of losing a beneficiary designation. Experienced estate planning attorneys know that there can be a great deal of involvement in deciding who and how retirement assets should go. But let’s look at a simple example of a retirement plan assignment failure.

John was married to Betty. Jon had a young Ira whom Jon named after his mother as the benefactor many years ago. John didn’t think much about the IRA. He only had $30,000 and he hadn’t touched it in many years. He also had a retirement plan at work that amounted to hundreds of thousands of dollars. Work retirement plan named Betty as the beneficiary.

John and Betty consulted an estate planning attorney who helped them devise a plan to leave everything to their survivors with appropriate distributions to their children after the survivor’s death. The little IRA will still go to John’s mother.

When John retired, he was thinking about what to do with his retirement plan. He was frustrated with the investment options available under his retirement plan. He knew the IRA had more flexible investment options. So, John rolled out his retirement plan into his own IRA.

John forgot that he named his mother as the beneficiary of his IRA. The assets that were in his retirement plan, which used to make up the bulk of his assets, will now go to his mother instead of his wife upon his death. Worse, while Betty has her own assets from her business, John’s children will likely lose the bulk of the assets that go to his mother. His mother has 35 grandchildren and her estate plan left them equally assets.

This thwarted the designation of the snafu beneficiary of the planning that had been done for John’s assets. John’s mother would probably agree to give the assets to John’s widow and children. But she may not have done so or could not because of her impotence. This highlights the need to check beneficiary assignments every time there is a change. It also highlights the need to examine beneficiary assignments periodically, when reviewing the plan.

Estate planning attorneys may be dragged into this situation through no fault of their own. However, if they miss this rating when reviewing, they may have an increased liability. It is a best practice to have a copy of the beneficiary designation on each such asset. A client often forgets which appointment they made because it could have been years ago. So, be a hero to your clients and save yourself potential trouble by having a copy of your beneficiary designation.

Beneficiary assignments can be deceptively simple. Just beware of the rest of the glacier. The next blog in this series on beneficiary assignments will examine how beneficiary assignments that may have been ideal before SECURE may now have unintended consequences.

Stephen C. Hartnett, JD, LLM
Education Manager
American Academy of Estate Planning Lawyers, Inc.
9444 Balboa Street, Suite 300
San Diego, CA 92123
Phone: (858) 453-2128
www.aaepa.com

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