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Gina G. MacDonald: Keeping your estate plan current

It’s the Law

Posted: February 12, 2009 8:55 p.m.
Updated: February 13, 2009 4:55 a.m.
As this is the beginning of the new year, one of your tasks should be to make sure your plan beneficiary choices are up to date.

While many people periodically update their wills or other estate plans, they don’t remember to update the designation of who will receive distributions from their retirement plans, such as an IRA or 401(k) fund. You should also review any and all life insurance beneficiary designations.

Every year you should review your entire estate plan, and the review should include retirement plans and life insurance ”beneficiary designations” to make sure they are not outdated. Here’s a few tips.

  • Name a beneficiary: Do not assume that your retirement plan will be distributed according to your will. If you don’t name a beneficiary,  the distribution of benefits may be controlled by state or federal law, or according to your particular retirement plan.

Some plans automatically distribute money to a spouse or children. Others might leave it to the retirement plan holder’s estate, which could have negative tax consequences and additional expenses resulting in a probate action if you already have created a trust.

It can also result in a lump sum distribution to a child when they attain the age of 18, even though your trust document may have other restrictions.

Many clients do not feel such a large distribution is beneficial to a child at that age and want to delay the distribution until the child is older. The only way to control where the money goes is to name a beneficiary.

  • You may want to designate a trust as your beneficiary: If your estate is more than the current estate tax exclusion ($3.5 million for 2009) and a large portion of it consists of retirement plans, it may make sense to direct that the plans be payable to a trust rather than to the surviving spouse.

The trust must be properly drafted to avoid tax consequences, so consult with your attorney before doing this. If you want your money to go into a trust for children, be sure to designate the trust as the beneficiary. If you name your children, the money will go directly to them.

  • Major life changes: If you get married or have children, you may want to change your beneficiary. Also, if your spouse was your beneficiary and you got divorced, your former spouse will still be the beneficiary.

If you wish to remove a former spouse from the plan, you will have to fill out a new beneficiary designation form and probably provide the plan administrator with a copy of the final judgment of dissolution of marriage showing you are now single.

  • Review your beneficiary designation periodically: Your beneficiary may not be who you remembered it to be or it may be outdated. For example, if you named a charity as beneficiary, you will want to make sure the charity still exists. If you have named a beneficiary who is now deceased, the benefit may then be payable to your estate.  

A change of beneficiary form can often be downloaded from the Web site of the firm holding the plan assets. It can avoid additional work and expense at your death for your personal representative or trustee if these designations are current.

Gina MacDonald is a lawyer whose practice is concentrated in the areas of estate planning, probate, family and elder law. Her column represents her own views and not necessarily those of The Signal.


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