Mullen and Iannarone, P.C.
Serving the legal needs of corporations, individuals and
families of Suffolk County since 1972

Estate planning mistakes related to benefit plan designations

Many people who start new jobs in New York don't think much about the assortment of paperwork they first get from HR. Some of these documents, such as life insurance forms, company stock purchase plans and retirement plans, require beneficiaries to be named. But when it comes to who gets what when it's time to pass along assets, there's a common assumption that details of this nature will be covered by a will.

This isn't always the case. Listed benefit plan designations for beneficiaries are not part of a deceased individual's probated estate. Most people name a spouse as a primary beneficiary and kids as contingency beneficiaries. Therefore, if a spouse predeceases an employee with benefit plans, the plan's proceeds could automatically be passed along to children when they reach the age of maturity, which is 18 or 21.

This could be problematic if one has the desire to restrict their children's access to certain funds until they are older and likely to be more responsible. The potential pitfalls associated with beneficiary designations can be even more noticeable for someone who has been with a company for many years. This is because it's common for long-term employees to have earned substantial stock options. If this is the case, it's entirely possible for the bulk of an individual's assets to be in company stock, which could make the dispositive provisions of a will essentially irrelevant.

Fortunately, it doesn't take much effort to update beneficiary designations. It can also be helpful for someone wishing to have more control over asset disruption to consult with an estate planning lawyer to explore various options. One possibility is to name a trust as the preferred beneficiary of certain work-related assets, such as a 401(k) plan. Doing so would allow more specific distribution provisions to be made.

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