Next in Line is a weekly newsletter for advisors, brought to you by Herbie, covering the practical yet consequential interaction between estate planning and family dynamics.
When Sarah remarried, she did everything right. She met with an estate planning attorney, created new wills and trusts, signed powers of attorney, and left with an estate plan that reflected exactly how she wanted her assets distributed. She assumed everything was finally in order.
A few years later, Sarah died unexpectedly.
Her husband, David, soon discovered that her largest asset—a seven-figure IRA—wasn't controlled by any of those documents.
Years earlier, Sarah had named her former husband, Mark, as the beneficiary. She never updated the form.
Neither Sarah nor David had any idea that the beneficiary form would override her updated estate plan. But it did, and the IRA passed directly to her ex-husband.
The trust was flawless. The will named all the right people. Yet, retirement accounts generally pass according to the beneficiary designation — outside the will and trust — even when it conflicts with the rest of the estate plan.
This is one of the most common—and costly—pitfalls in estate planning. Clients spend hours discussing trusts, guardians and taxes, while the beneficiary form they completed years ago quietly determines where hundreds of thousands or millions of dollars ultimately go. And too often, it goes forgotten.