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Dotting the i’s and crossing the t’s makes all the difference when it comes to estate plans. If beneficiary designations are not up-to-date, unintended individuals like ex-wives can end up with the surprise gifts!
Until all the detail work has been done, your estate plan is not really complete. That includes funding accounts, retitling assets, and one of the most overlooked: updating beneficiary designations.
As Wilmington Business Insights notes in its recent article, “Incorrect Beneficiary Designations Can Undermine Estate Planning,” experienced attorneys tailor estate plans to make sure the individual’s assets are disposed of exactly as they wish.
It is common, however, for people to go and gum up the works by inadvertently changing or neglecting to change a beneficiary designation. A simple mistake can wipe out the whole purpose of the estate plan.
For example, many people believe that putting someone else’s name on an account can give them needed access to help pay bills and balance the checkbook, but don’t realize this change could remove that account from the estate. Rather than being distributed pursuant to the person’s will, that money could instead become the property of the relative whose name is on the account. This is true for a bank account, investment account or insurance policy. People frequently designate beneficiaries and then forget about it. For example, divorced persons often fail to remove their ex-spouses as beneficiaries.
It’s smart to review beneficiary designations regularly to ensure that everything is up to date. Any important life event like a birth, marriage, or divorce should precipitate a review of all beneficiary designations to be certain they’re still what the owner intends. Remember: regardless of what’s written into a will or trust, it will be superseded by whatever beneficiary designations are on file.
Some types of assets or accounts receive special treatment, if the spouse is named beneficiary. These include ERISA retirement accounts like 401k plans and profit sharing plans. Therefore, if the marriage is sound, and there’s no other reason not to do so, it’s a good idea to name the spouse as the primary beneficiary.
Take two additional steps when it comes to beneficiaries: first, always name a contingent beneficiary, that is, a person who will be next in line, if the primary beneficiary dies before you. Second, if any of the beneficiaries are minors, provide specific instructions as to who will handle the money for them until they come adults.
Reference: Wilmington Business Insights (September 1, 2017) “Incorrect Beneficiary Designations Can Undermine Estate Planning”