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Beneficiary designations: Important component of estate planning

More and more Michigan residents are becoming aware of the importance of creating and maintaining estate plans. Most people are aware that wills and trusts and other documents involved in estate planning should be periodically reviewed and updated, particularly in the event of a life change such as a marriage, divorce or birth of a child. There is one important issue that is frequently overlooked and can have negative ramifications down the road.

Employers frequently provide 401(k) plans. Many of these plans have hundreds of employees enrolled, and companies may make use of auto-enrollment to include employees in the plan. While this is an efficient method of enrolling, it does mean that certain pieces of information, such as beneficiary designations, may not be captured. Missing beneficiary designations can be overlooked in initial applications and may not get flagged for updating later on. As a person gets older this can have serious ramifications.

A major provider of 401(k) plans had over 22,000 plans with 15.3 million participants in 2016. Of those plans, 31 percent offer auto-enrollment. Participation in auto-enrollment plans was 86.9 percent and participation in non auto-enrollment plans was 50.2 percent. Beneficiary designations are commonly overlooked or not updated. Failure to update or complete the designations can potentially cause tax or legal issues if the owner of the 401(k) dies without updating the information.

Successful estate planning doesn’t end with the creation of a plan in Michigan. It should be periodically updated and reviewed to ensure that all information, including beneficiary information, is current. An attorney experienced in estate planning can create or review a plan with an eye to making sure that all issues are covered.