Insight on Estate Planning - October/November 2013: Estate Planning Pitfall: A beneficiary designation or joint title overrides your will

Inattention to beneficiary designations and jointly held assets can quickly unravel an estate plan. Suppose, for example, that your will provides for all of your property to be divided equally among your three children. But what if your IRA, which names the oldest child as beneficiary, accounts for half of the estate? In that case, the oldest child will inherit half of your estate plus a one-third share of the remaining assets — hardly equal.

The same goes for jointly owned property. When you die, the surviving owner takes title to the property regardless of the terms of the will.

Unfortunately, many don’t realize that their will doesn’t control the disposition of “nonprobate assets.” These are assets that are transferred automatically according to a beneficiary designation or contract, overriding the will. Examples include life insurance policies, retirement plans and IRAs, jointly owned real estate, joint bank or brokerage accounts, payable on death (POD) accounts, and transfer on death (TOD) securities. Even savings bonds come with beneficiary forms.

To ensure the estate plan reflects your wishes, review beneficiary designations and property titles regularly, particularly after significant life events, such as a marriage or divorce, the birth of a child, or the death of a loved one. To better control the disposition of your assets, consider setting up a living trust and transferring property to the trust or naming the trust as beneficiary of assets or accounts that require a beneficiary designation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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