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Estate planning lessons from a million-dollar mistake

Readers in the Seattle area may take a lesson from an unfortunate tale that left one man's wife grieving while his ex-wife harvested a $1 million windfall. In a case of tragic oversight, the deceased man never followed up to change the beneficiaries of his lush retirement account and life insurance policy. The result of this all-too-common error undoubtedly sabotaged the man's wishes for his second wife and highlights the importance of competent estate planning early in life.

Unlike a will, financial instruments that designate beneficiaries are not subject to probate administration. The payouts from insurance policies, retirement accounts and certain other estate planning tools go directly to the named beneficiaries. In some cases, litigation may succeed at altering beneficiary designations after the fact, but only at a steep financial and emotional cost to surviving family members.

Owners of life insurance policies and other designated beneficiary accounts need to remember to check their beneficiary designations regularly to ensure that their assets will pass to the desired recipients. Life changes such as marriage, divorce and the birth of a child should trigger a review of beneficiary designations. Even in the absence of a life-changing event, regular review continues to be worthwhile in order to make sure that certain beneficiary designations, such as gifts to charities, still fit with the estate plan.

Although a healthy life insurance policy will often be a boon to surviving family members, comprehensive estate planning early in life can help estate owners avoid problems and spare loved ones the burden of having to litigate errors and omissions.

Source: Forbes, "Dead man's outdated beneficiary documents give $1 million to ex-wife," Michael Chamberlain, Feb. 21, 2012

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