When California residents create their estate plans, choosing the beneficiaries for their bank accounts, retirement accounts and insurance policies are some of the most important decisions they make. The funds in accounts with beneficiary designations are distributed outside the probate process. This saves time and money, but it makes it difficult or impossible to prevent distributions or change beneficiaries. This is why it is important to review, and, if necessary, change beneficiary designations after a major life event like a divorce or the birth of a child.
Irrevocable and revocable beneficiaries
Most IRA and 401(k) accounts and insurance policies have beneficiary designations that are revocable. This means that the account holder can change their beneficiaries at any time, and they do not have to inform the current beneficiary or obtain their consent. When beneficiary designations are irrevocable, they can only be changed if the current beneficiary provides consent in writing. Divorce decrees sometimes name the couple’s children as irrevocable beneficiaries to make sure that child support obligations are met.
Community property laws
In states like California that have community property laws, all of the money earned and assets acquired during a marriage are considered the property of both spouses. This includes funds in accounts that may have beneficiary designations. When a married person in California opens a retirement account, half of the money they place into it belongs to their spouse. If they die, their spouse will be entitled to their half of the money regardless of who the designated beneficiary is. This is why a surviving spouse is usually the designated beneficiary in California estate plans. If the surviving spouse is not the designated beneficiary, the person who is the designated beneficiary will only receive half of the funds in the account.
Peace of mind
Estate plans should provide peace of mind, but they only do this if they are revisited from time to time to ensure that they still reflect the testator’s wishes. Checking beneficiary designations should be done regularly and after major life events like marriage or divorce. Revocable beneficiaries can be changed at any time, but irrevocable beneficiaries can only be removed if they give consent in writing.