Many families have retirement accounts and life insurance as a way to plan for the future. As common as they may be, a lot of confusion remains about what happens with those accounts if something happens to you (the account owner and insured). Many married folks believe they go to their surviving spouse and then maybe their kids. Maybe yes, maybe no.
You see, retirement accounts and life insurance are what we call beneficiary designated assets. This means that you instruct the retirement account custodian (the financial institution) and the life insurance company to distribute those asset to the person (or people) you name on a beneficiary designation form. You may or may not remember filling one out, but you did. As a Grand Rapids, Mi estate planning lawyer, I’ve seen many cases where beneficiary designations caused serious problems when the account owner passed away because they weren’t updated for changed life circumstances.
For instance, just this past week I had a family share just such a story with me. They had a relative who got divorced 20+ years ago and who had a decent sized retirement account. When he divorced his ex-wife, he decided to name his sister-in-law as the beneficiary on his retirement accounts because he did not want his minor children to receive the funds through the probate process. By the way . . . that is NOT estate planning and is almost always a very bad idea from a planning standpoint.
So, time went on, his kids grew up into fine adults, and life kept rolling . . . until it stopped. He died. Guess what? He never changed the beneficiary designation on his retirement account and it all went to his sister-in-law . . . his kids received NOTHING! As you might expect, the kids challenged this by taking the sister-in-law to court. The judge sided with the sister-in-law. That may seem unfair, but the judge was correct. The beneficiary designation is a contract you have with the financial institution that they are to pay the assets to the person (or people) you named – if they don’t, they are in serious trouble.
This is just one example of why it is SO important to review your financial planning and estate planning on a regular basis. There are many more stories – some with more disastrous outcomes. This is a large part of why we include ongoing 3-year reviews at NO CHARGE for all of our estate planning clients and why we are developing a ClientCare Plan Monitoring system for our clients. Your life will change, the law will change, and what you have will change . . . your plan needs to change with it so it doesn’t fail.
If you don’t have a plan in place for your family, call us right away to schedule a Peace of Mind Planning Session. And if you have a plan but your planning experience was dry, transactional, not explained well, and form driven, give us a call for a plan review meeting. In both situations we will share with you how planning works and make sure you have an active role in designing your family’s estate plan – it is not one size fits all. Call us at 616-827-7596.
Michael Lichterman is an estate planning and business planning attorney who helps families and business owners create a lasting legacy by planning for their Whole Family Wealth™. This goes beyond merely planning for finances – it’s about who your are and what’s important to you. He focuses on estate and asset protection planning for the “experienced” generation, the “sandwich generation” (caring for parents and children), doctors/physicians, nurses, lawyers, dentists, professionals with minor children, family owned businesses and pet planning. He takes the “counselor” part of attorney and counselor at law very seriously, and enjoys creating life long relationships with his clients – many of which have become great friends.