Common Mistakes With Retirement Plans and Estate Planning

Do you have an estate plan? If not, you are not alone. Fewer than half of Americans have an estate plan—the percentage varies between 55 percent and 70 percent, depending on which survey you rely upon. For those of you with an estate plan, there are mistakes that can be easily avoided. In this article, I will specifically address the issue of retirement plans and beneficiary designation forms.

Most people think that a will is the only document you need for an estate plan—not true! A will directs how your “probate assets” are distributed. Probate assets are assets that are owned solely by you (i.e., no joint owners) and have no beneficiaries named on the account. A retirement plan, such as a 401(k) or IRA, is not a probate asset. Your retirement plan is to be distributed in accordance with the beneficiary designation forms that you complete. It is possible for your will to direct your assets to be distributed to one person, and your beneficiary designation form to direct your retirement plan assets to a different person. Sometimes, this is intentional, and if so, generally done for purposes of minimizing tax consequences. However, many other times, this is a mistake that is overlooked and has unintended consequences.

Why is it important to complete the beneficiary designation form?