An estate plan is not one document. Rather, it is a collection of various documents that deal with a wide variety of assets, and leave instructions for various situations. An important part of any estate plan is a person’s beneficiary accounts. As a recent article explains, one of the most widespread estate planning mistakes occurs when people fail to update their beneficiary designations.
Beneficiary accounts such as IRAs, retirement accounts, insurance policies, mutual funds, bank accounts, brokerage accounts, annuities, and 529 college savings plans are accounts that are transferred to a designated beneficiary immediately at the death of the account holder.
Importantly, a person’s will or trust does not trump his or her beneficiary designations. For example, if a divorced man failed to take his ex-wife’s name off of his retirement account before he died, the proceeds of the account would go to his ex-wife. This would be the outcome even if he clearly stated that the ex-wife was to be disinherited in his will.
It is good practice to update your beneficiary designations once every few years and after important events, such a marriage or divorce.