Beneficiary Designations: Still the Biggest Mistake in Estate Planning
March 5, 2014
Of all the mistakes clients make before they die, failing to consider the implications of beneficiary designations on non-probate assets remains the biggest issue for many families. Many clients are not aware that their Wills generally affect only solely owned assets; thus, assets like IRAs, 401(k)s, life insurance, annuities, TOD accounts, and others also need careful attention. In many cases, clients fail to name contingent beneficiaries to such documents, which can have adverse estate and income tax consequences. Further, it may disrupt a person's intended estate plan.
Also important (and never considered) are the tax allocation clauses of your Will. Most standard clauses direct the entirety of your inheritance tax to be paid from the residue of your Estate. However, if only one beneficiary is named on a non-probate asset like an annuity, which is subject to inheritance tax, then all of the residuary beneficiaries of your Will may end up paying the tax. These considerations require a “big-picture” approach to your estate planning, and should encourage all clients to seek the advice of an experienced estate planning attorney.