An Individual Retirement Account (IRA) represents the largest asset for some people. An individual retirement account allows an individual to save money for retirement by making contributions with pre tax dollars. Earnings can potentially grow tax-deferred until you withdraw them in retirement.
Individuals often select their beneficiaries for these accounts by processing a beneficiary designation card. This method of estate planning has proven problematic for some individuals. Lets take a look at Bill and Mary who were married for 25 year. Mary opened her IRA account some 25 years ago when, she started her first job. Mary IRA has increased in value throughout these years and now represents her largest asset. She has designated her husband as the primary beneficiary, and their two children as backup beneficiaries. Unfortunately, Mary has not reviewed her beneficiary designation form.
Bill divorces Mary and later that year she unexpectedly dies. When the children's attorney reviews Mary’s estate he discovers that Mary never removed Bill as her beneficiary on her IRA account. Now he has the unenviable task of informing the kids they are not entitled to any of the proceeds of their mother’s IRA.