This article was originally posted on Smart Money by an author unaffiliated with Capital Investment Advisors.
With the current $5 million federal estate tax exemption, you may not be thinking much about estate planning. After all, there's no way your estate would owe the tax if you happen to die between now and 2013. So no worries, right? Wrong. In fact, there's an important estate planning move you should probably make as soon as you finish reading this: check the beneficiary designations for your bank accounts, brokerage firm accounts, tax-favored retirement accounts, company benefit plans, life insurance policies, annuities and 529 college accounts.
If you haven't yet turned in the forms to designate beneficiaries, do it now. If your forms are out of date, change them. It's amazing how often folks fail to take these simple steps, and the consequences of slacking off can be dire. Need a couple horror stories for motivation? Here you go.
How would you feel if you died and your ex, who you intended to get nothing more after your recent divorce, was allowed to vacuum up your company pension benefits and the proceeds from your company-provided life insurance coverage? Probably not very good -- especially if you had wanted your son and daughter from an earlier marriage to receive the money. Unfortunately, Dad failed to change the beneficiary designations for his pension benefits and life insurance after the divorce, so his ex-spouse remained the named beneficiary. The U.S. Supreme Court ruled that the beneficiary designations trumped state law that would have automatically disinherited the ex. So she got the money, and the kids got the bills for an unsuccessful legal fight that went all the way to the Supreme Court.
In another case, an ex-spouse collected $400,000 from her former husband's company savings and investment plan when he died -- even though the ex had specifically waived any interest in the plan under the divorce agreement signed seven years earlier. Believing the divorce agreement was the last word on the subject, the man failed to turn in the form to officially change the plan beneficiary from his ex to his daughter. The plan document stipulated that beneficiaries could only be changed by submitting the form. The U.S. Supreme Court ruled that the hideously outdated beneficiary designation trumped the divorce agreement. So the ex got the $400,000 and the daughter got stiffed.
