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Changing beneficiary designations is part of estate planning

Many Massachusetts residents with retirement accounts such as IRAs and other accounts that pass outside of a will probably filled out a beneficiary designation form when the account was first established. Depending on how long ago that was and what has gone on in their lives since, those designations may be out of date. An integral part of estate planning is ensuring the person set to inherit those accounts is still the one the account holder wants to receive them.

A periodic review of estate planning documents is typically recommended. At the same time, beneficiary designations require review as well. These accounts generally pass to the beneficiary listed despite any instructions to the contrary in a will. Accordingly, the question becomes when beneficiaries need to be changed.

For instance, a former spouse listed as a beneficiary for such an account will inherit it even if the account holder is divorced or has subsequently remarried. Sometimes, the beneficiary dies first. Without a secondary beneficiary or a change in the primary beneficiary, the account will end up as part of the deceased beneficiary’s probate estate. When a person has a child or grandchild, he or she may want to leave the account to that individual; however, care needs to be taken not to leave the account to a minor. A trust may be the best option in this case.

Less obvious reasons to change a beneficiary designation exist as well. When a retirement account is rolled over, a new designation may need to be made. If a bank changes hands, some banks do not automatically honor beneficiary designations. Moreover, if a beneficiary becomes disabled and is drawing disability benefits from governmental agencies such as Social Security, inheriting a retirement account could jeopardize that person’s ability to receive those benefits.

For these reasons and more, a review of beneficiary designations is crucial. One of the primary goals of estate planning is to ensure that assets are distributed in accordance with the decedent’s prior wishes. For Massachusetts residents who have accounts that pass outside of a will, keeping track of who will receive those accounts upon death is part of providing for heirs after death.

Source: MarketWatch, Don’t make the No. 1 estate-planning goof, Harper Willis, Jan. 23, 2014


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