The bulk of the assets that a decedent leaves to his or her loved ones are usually made up of retirement accounts (e.g., IRA, 401(k)), life insurance policies, annuities, employee benefit plans or stock options.
Many people mistakenly believe that such assets ultimately pass to the beneficiaries named in a Last Will and Testament but unfortunately, this is not the case. These types of assets are known as non-probate assets which means that a decedent’s Last Will and Testament does not govern the ultimate disposal of these assets; rather, the disposition is governed by a beneficiary designation form.
Many times, when individuals are young and do not have a family of their own, they will list their parents as the beneficiary of a life insurance policy or retirement account on a beneficiary designation form. Later, when they have a family of their own, they mistakenly believe that when they die their family members will be the beneficiaries of the life insurance policy or retirement account. Unfortunately, however, if an individual was to die without updating the beneficiary designation form to include his or her family members, the individual’s parents would receive the benefits of the life insurance policy and retirement account that the deceased individual intended to benefit his or her family.
Beneficiary designation forms generally become stale due to life-changing events (i.e., marriage, the birth of a child, or the death of an individual), and the failure of an individual to update a beneficiary designation form can have unintended results.
In order to best ensure that an individual’s non-probate assets pass to the intended beneficiaries, it is recommended that individuals review their beneficiary designation forms at least every two to three years and upon any life changing event. Concurrently therewith, it would be prudent to have an attorney review the beneficiary designation forms in connection with a review of an individual’s current estate planning documents, as they generally go hand-in-hand.