Assets that remain within your Colorado estate at the time of your death are typically subject to state probate laws. However, certain assets such as an IRA, 401(k) or a bank account may be able to avoid probate if you have completed beneficiary designation forms correctly. Let’s take a look at some common beneficiary designation mistakes to avoid as well as what happens if you do make an error.
Make sure to actually designate a beneficiary
Perhaps the most common mistake that people make is to not designate a beneficiary at all. You have the option to do so from the moment that an eligible account is opened. It’s worth noting that your spouse must generally be the beneficiary of a 401(k) unless he or she waives the right to be named as such.
It may be best to designate an alternate beneficiary
It’s possible that your spouse, child or another primary beneficiary will die before you do. Therefore, it’s generally a good estate planning decision to name two or more people who could receive a retirement account or financial asset if necessary. It’s also possible that you will no longer have a positive relationship with your beneficiary at the time of your death. In such a scenario, make sure to remove that individual from a beneficiary designation document altogether while still alive and of sound mind.
What happens if there is a problem with a beneficiary designation?
If no one can inherit your 401(k) or similar property, it will revert back to your estate. At that point, it will need to go through probate, which means that it may be inherited by a spouse or child instead of who was listed on the designation document.
Generally speaking, it’s a good idea to review all estate planning documents on a regular basis. Doing so may catch any errors or omissions that might invalidate some or all of your plan.