a $400,000 mistake–another self help blunder related to beneficiary designations

July 2, 2014 - Posted by: admin - In category:

taxes - No Responses

Self-help, or “do it yourself” planning can come in all shapes and forms.  There is an article on Yahoo Finance which documents a tragic story of a man who’s “do it yourself” method cost his children $400,000.

In 2008, just prior to dying from cancer, Mr. Smith undertook several efforts to get his affairs in order, including getting a Will in place.  Unfortunately, a single, simple, but awful mistake undercut and destroyed all of his plans relating to his sizable retirement account.  Several months following Mr. Smith’s death, his children realized that his IRA beneficiary form had been filled out incorrectly.  Instead of specifically listing the names of his children, Mr. Smith had written that his account should be allocated and paid out “pursuant to my last will and testament.”  This was subsequently rejected by the IRA custodian, who then, by default, paid all of the account proceeds to Mr. Smith’s wife (of 2 months).

There are many lessons to be learned from this, including the fact that account beneficiary designations should be VERY carefully scrutinized.

CLICK HERE TO READ THE ARTICLE

The article also includes five tips to ensure that beneficiary designations are done in a proper manner–one that avoids such a potentially expensive situation.  To summarize those suggestions:

  1. Regularly review and update beneficiary designations
  2. Be careful about both names and percentages, as the later is often neglected or done incorrectly
  3. Ensure that you have used the correct beneficiary designation form and such was accepted in writing by the relevant institution.  Each company has their own form and these are often rejected on technicalities
  4. Keep backup copies and copies of written acceptances in your files
  5. Consider getting help from your financial advisor, estate planning attorney or someone else who regularly deals with these types of matters.

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