Don’t Ignore State-Specific Laws on Beneficiary Designations

Many must pay more attention to understanding and complying with state-specific beneficiary design laws. Failure to do so can lead to unintended consequences and complicate the distribution of assets. When beneficiary designations are not adequately managed, they can result in significant delays and costly legal disputes.  

How Beneficiary Designations Impact an Estate Plan

What happens when someone’s will doesn’t align with their beneficiary designations? This does happen—something you can avoid—but the designations supersede the will’s instructions. This means that even if a will specifies who should receive certain assets, those instructions will be ignored if there are conflicting beneficiary designations on accounts or policies. For example, if a retirement account lists a beneficiary different from what is mentioned in the will, the designation on the account will take precedence. In Missouri, a beneficiary designation can be changed or revoked during the owner’s lifetime, but changes involving jointly owned property require the agreement of all living owners.

Missouri law states that a revocation or change must comply with the terms of the governing instrument and applicable laws. Failure to adhere to these state-specific requirements can result in disputes and legal challenges. Review beneficiary designations regularly once a year or after significant events.  

Critical Considerations for Beneficiary Designations

We want to address the need to keep your beneficiary designations updated. As mentioned above, it is wise to look at your designations (and your estate plan in general) after significant life events. Getting married, filing for divorce, having a child, or losing someone close to you can directly impact your previously designated beneficiaries. Outdated beneficiary designations can lead to assets being distributed to unintended individuals.

For instance, if a person divorces and remarries but fails to update their beneficiary designations, their assets may go to their former spouse instead of their new spouse. It’s also crucial to ensure that beneficiary designations are consistent across all documents to avoid confusion and potential legal issues. Each type of account may have its own set of parameters for who can be named as a beneficiary. In Missouri, simply updating a will does not change the beneficiaries on accounts like IRAs or life insurance policies.

Naming minors as beneficiaries can complicate the process. The court may appoint a guardian to manage the assets if a minor is named. To avoid this, it’s often better to name a trust as the beneficiary for minor children. Trusts can be structured to ensure that distributions are made according to the grantor’s wishes, providing more asset control. Understanding the tax implications of beneficiary designations is also crucial. Different types of accounts have different tax treatments for beneficiaries. For example, spouses have more flexibility with retirement accounts than non-spouse beneficiaries, who may have to take distributions sooner and face different tax obligations. Ignoring state-specific laws and not keeping beneficiary designations current can result in legal issues and unintended asset distribution.

Avoid Additional Complications with Beckemeier LeMoine Law

If you need help understanding and updating your beneficiary designations or have any other estate planning needs, schedule a consultation with Beckemeier LeMoine Law.