For many, estate planning is assumed to revolve only around wills, trusts, and retirement plans. However, there is an entire section of estate planning that not only ensures your wishes are followed but also helps the process move smoothly and efficiently. That is beneficiary designations.
Beneficiary designations are an essential aspect of estate planning and can even override some areas of the estate plan. So, it is essential to have well-thought-out beneficiary designations in place and to review them regularly as your life, wishes, and assets might change. Just like any aspect of your estate plan, beneficiary designations should be reviewed regularly.
With the help of an estate planning attorney, this can be a simple process.
What Are Beneficiary Designations?
A beneficiary designation is the act of formally choosing an individual or entity, such as a charity, to receive your assets from policies or financial accounts.
This could be retirement accounts, life insurance, bank accounts, or other financial accounts or investments you might have. Upon your passing, the beneficiary named will obtain the asset immediately, bypassing probate and often overriding what is written in the will.
Additionally, you can write a primary beneficiary, someone first in line for the asset, and a secondary beneficiary, someone who will obtain the asset if the initial beneficiary is unable to.
Common Mistakes Made When Choosing Beneficiaries
Naming beneficiary designations is often seen as a one-time event, but it is actually the most common mistake people make. Failing to review and edit your beneficiary designations when necessary is the most common mistake. It is essential to review these terms frequently.
Another common mistake is failing to name a secondary beneficiary. Estate planning needs backup plans, as you can not predict what might happen after you are gone. Backup plans ensure your wishes are still upheld, even if it wasn’t plan A. On this same note, a common mistake is naming a minor as a beneficiary. Naming a minor may require a court-appointed guardian, or they may not be able to inherit the asset at all.
A significant mistake we often see is small errors made in the writing of the beneficiaries. This could include spelling mistakes, address inaccuracies, nicknames instead of legal names, or vague instructions. All of these can stall asset distribution and lead to possible issues.
How Often Should Beneficiary Designations Be Reviewed?
With beneficiary designations having an important part in taking over assets, very crucial assets to yourself, it is essential to review your beneficiary designations often. It is recommended that beneficiary designations should be reviewed on a yearly basis, alongside the rest of your estate plan, to ensure your wishes, possible legal clauses, or anything else involved in the write-up are not outdated or possibly leading to an unintentional outcome.
Beneficiary Designations Should Be Reviewed After Major Life Changes
While once a year is the appropriate time to review beneficiary designations, if there are any major changes in your life, such as a marriage, a baby is born, a divorce, a beneficiary’s death, or a significant asset purchase, these choices should be reviewed sooner rather than later.
When these moments occur, you might feel the need to change your primary beneficiary designations or edit your secondary beneficiary choices. No matter, it is essential to conduct these changes as soon as you know them to ensure your estate plan is up-to-date and able to properly relay your current wishes.
Continue to Align Your Estate Plan With Beneficiary Choices
Your estate plan and beneficiary designations go hand-in-hand.
It is essential to remember that beneficiary designations will often override what is written in the will, as they are a transfer-on-death agreement. Additionally, these actions will avoid probate as they are immediate and do not need to go through the probate process, meaning beneficiaries, whether an individual or an entity, will acquire the assets quickly after your passing.
So, it is essential that your estate plan and beneficiary designations are aligned and do not contradict each other. If there are issues or contradictions, there may be room for conflict and court hearings within the family, as they want straight answers. So, ensure that when you edit one thing, everything else is reviewed as well.
Beneficiary Designations Can Help Shorten or Avoid Probate
A significant advantage of beneficiary designation is that it can help shorten or avoid probate for those specific financial accounts, as it is a transfer-on-death process.
However, this can only be the case if these terms are regularly updated and correct. If you have someone named who is no longer with us, does not exist as an entity anymore, you do not get along with anymore, or simply does not want the asset, there is a possibility that the account will go through the probate process anyway. So, reviewing it regularly can ensure there are no hiccups.
Beneficiary Designations Should Match Your Current Wishes and Plan, Not Your Old Ones
Your estate plan is your ruling on what you want and do not want to happen with your assets after you are gone. However, as you continue to live your life, your choices and motivations will change, meaning your estate plan will change with them. Your beneficiary designations should follow the same pattern. You want your estate plan and beneficiaries to match what you most recently wish to happen, not what you wished to happen five years ago. The last thing you want is for accounts, especially financial accounts, to be dictated by choices you made before possible life or mindset changes.
The most important thing you can do for yourself and your family to ensure your wishes are upheld and that they don’t need to go through a lengthy probate process is to review and update your beneficiary designations regularly.
If you have further questions or wish to set up your beneficiary designations, contact the team at Hartmann Law.