downloadBefore Leonard Smith lost his battle with cancer in 2008, he worked with his financial advisors to make sure his children received the balance of his retirement funds when he died.

He had remarried late in life, two months before his death in 2008, in fact. But it was clear he wanted his children (now adults themselves) to be the beneficiaries of his retirement accounts. So he updated his Will to specify the distribution.

The only problem was, on the IRA beneficiary form itself, rather than filling in the spaces for beneficiaries and percentages, he just wrote that it should be distributed pursuant to the instructions in his Will.

That rendered the form invalid, legally.  A mistake, the IRA manager should have caught. 

So despite litigation by the children, a probate judge ruled that the man’s surviving spouse was entitled to the $400,000 in the account in the absence of any valid legal document overriding the rules of the IRA account.

While a will is of course a fundamental tool in estate planning, IRA funds almost always pass to beneficiaries as designated on the form.  

The fact is that beneficiary forms will trump a Will’s directives most of the time, and so they also need to be kept up-to-date regularly and after any major life changes.

And keeping them up-to-date also means keeping them correctly completed, with names of one’s heirs and percentages. In our office, I always ask for copies of these forms for my records, and I believe almost any estate planning attorney would have caught this kind of mistake.

The article point out that to keep this from happening, follow these five tips:

1) Set aside time at least once a year to update your beneficiary forms. Your beneficiary forms will override your will 99% of the time so it’s important to keep these forms up-to-date and make sure your will and your designated beneficiaries on accounts don’t contradict each other. You should fill out a new form if you’ve had a birth, death, marriage, or divorce in your family. If you can’t find your beneficiary designation form, ask the financial instituation for a new one. If you choose to fill out this form online, make sure to print a hard copy for your files.

2) When filling out a beneficiary form, don’t forget to designate percentages next to the names of your beneficiaries. You can also write “in equal shares” if you want the assets to be distributed equally. Also know that adding “per stirpes,” Latin for “bloodline,” after your beneficiaries’ names and the percentages, will ensure that it will go to your beneficiaries’ descendents.

3) If the institution where your money is held changes its name or merges with another bank, fill out a new form. Forms with old institution names may not be valid and the banks won’t go out of their way to tell you.

4) Keep hard copies of your beneficiary forms, including your “payable on death” forms and your “transfer on death” forms in your emergency file. If all of these forms are in your account online, keep hard copies on hand because computer systems change and the forms might be hard to track down, especially if the bank has merged or changed names.

5) Make sure you hire an estate planning attorney. Not just an attorney that does Wills on the side. Many financial planners and attorneys who do not specialize in estate planning can make mistakes when filling out forms because of state-specific rules and laws, or just plain lack of experience.

6)   MAKE SURE TO GIVE YOUR ESTATE PLANNING ATTORNEY A COPY OF YOUR BANK, IRA, 401(k) beneficiary designation forms! I always request these when people come in to do a Family Wealth Counseling session because I need to see if they have been filed out correctly and who they are made out to.

Source: Yahoo Finance, 8/11/14