In a statement after the verdict, NHF President Houk denied liability and disputed that advisers to the Mancillas family were unaware of the IRS ruling and the beneficiary change.

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Colin Kelton, the Vanguard official who signed the July letter, argues customers are getting adequate advance notice and will get a second letter in September alerting them that the beneficiary change has been made.

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Yet so long as you remain the account's owner, you can change the beneficiary or even take the money back -- if the state plan permits it.

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"The change of beneficiary has no cost, " she says.

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There is, however, a little-known--if inconvenient--escape hatch: Under IRS rules, you can move your investment from one state's plan to another state's plan without penalty, so long as you change the account beneficiary as you do so.

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Jointly owned assets generally pass on to the joint owner without going through probate, but for assets without a joint owner or designated beneficiary, you may have to change the way the assets are held in order to avoid probate.

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The change means workers should take another look at the beneficiary line on their 401(k) forms, says Edward Slott, a cpa who runs Irahelp.com.

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Their lawsuit charges that after the 1999 tax law change, the foundation, without notifying the Mancillases, changed the beneficiary on the policy from the family to the charity itself.

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