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A big estate planning mistake California residents must avoid

There is a big estate planning mistake that a lot of California retirees are making and it is important that you and you family know what it is so you can avoid making the same mistake yourselves. The mistake seems fairly obvious when it is pointed out, but for those who do not know about it, the mistake can have a devastating effect on your family after you have passed away. This mistake has to do with the beneficiary designations on your IRA, 401(k), 403(b) and annuities and life insurance plans.

A lot of California residents set up these accounts, fill out the the beneficiary forms on the accounts and never think about them again. However, these beneficiary forms are very important because they supersede information about asset distribution that is laid out in a will and/or living trust.

Time and time again, California spouses are dumbstruck to find that their diseased spouse's entire IRA or 401(k) account ends up getting distributed to an ex-spouse. It seems unthinkable, but it happens frequently where an ex-spouse receives the sum total of a retirement fund because the deceased person forgot to update the beneficiary form following the dissolution of the marriage.

Indeed, in these cases, it does not matter what the will or the living will says. The assets contained in retirement accounts and annuities are handled separately in accordance with the way the beneficiary form has been completed. Although the rightful heirs may try to fight the issue in court, the courts are likely to rule in favor of the beneficiary who was put on the form.

Because beneficiary forms are so important, California residents should review the beneficiary information on all their accounts every few years to ensure that they accurately reflect their current situations. Also, they should direct any questions they have about the law and whether they have correctly filled out their forms to an experienced estate planning attorney.

Source: Nerd Wallet, "Avoid This Estate Planning Mistake," Larry Weiss, May 06, 2016

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