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How old beneficiaries can haunt your California heirs

Who will receive your retirement savings when you die? Will it be the heir named in your will or the forgotten beneficiary you chose years ago? If you believe a California will trumps a beneficiary designation, think again.

The most carefully designed and tended estate plan is flawed if beneficiaries are not updated. When you opened the retirement account you began decades ago or bought life insurance at the beginning of your first marriage, you chose people who would inherit the proceeds upon your death.

Unless life hasn’t changed one iota since you made the beneficiary designations, your estate could be split between outdated desires and present wishes. Long-held bank accounts, investments, insurance and retirement plans may contain the names of beneficiaries you no longer want to inherit your assets, like a former spouse.

Problems also occur when a primary beneficiary dies but no secondary beneficiary is named. A financial account could be in legal limbo when you die, if the only listed beneficiary dies before you.

Perhaps you named your first child as a life insurance beneficiary, but never updated the policy after you became a parent to more children. Upon your death, the child could receive a disproportionately large inheritance, simply because you never went back to adjust the policy’s beneficiary designation.

Skipping over a beneficiary choice can be damaging, too. Loved ones eventually may receive funds you left in an IRA minus a named beneficiary, but tax rules will punish the heirs. A chosen beneficiary has options to spread out taxes on inherited IRA withdrawals that undesignated heirs do not have.

Financial consultants suggest once-a-year beneficiary reviews or at least timing updates around life-altering events. Marriage, the birth of every child or grandchild, divorce, an account ownership switch, a retirement plan rollover, beneficiary disability and family deaths create changes that need to be reflected in a Los Angeles estate plan.

Source: NextAvenue.org, “Don’t make the No. 1 estate-planning goof” Harper Willis, Jan. 23, 2014

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