Beneficiary designations are dangerous to forget.
You have a retirement plan.
You have a life insurance policy.
You even have a few investment accounts.
You can let them go and grow, while you forget them.
Wrong.
According to a recent Kiplinger article titled “Beneficiary Designations: 5 Critical Mistakes to Avoid,” you cannot afford to forget the beneficiary designations.
When opening the account, you should have provided primary and contingent beneficiaries.
By naming a beneficiary, these assets will pass directly to the designated individuals when you die rather than moving through probate.
Sounds simple enough.
Maybe.
There some common yet costly mistakes to avoid.
What are they?
Not naming a beneficiary.
People do this?
Yes.
Maybe they thought they would revisit it later.
Maybe they just overlooked it.
Either way, this complicates things for your heirs.
Instead of having the assets readily available, the money will be paid out according to the rules of the account.
In many cases, this means passing through probate.
This will cost both money and time.
If this is a retirement account, it will need to be paid out in five years creating a hefty tax for your heirs.
Ignoring family circumstances.
Without considering consequences, you may have named a relative with special needs.
This could disqualify your loved one from government benefits.
In this case, you will need to include a special needs trust.
Leaving money to minors also requires greater planning, either with a conservator until they reach age 18 or with a trust to provide rules to protect the money until they are able to manage it responsibly.
Naming the wrong person.
If your family includes Seniors and Juniors be sure to identify the correct individual.
Also, if someone’s name has been changed through marriage or divorce, be sure it is updated.
Otherwise, you will have delays or the wrong person will receive the sum.
Not updating beneficiaries.
If you have major life changes such as marriages, remarriages, divorces, or deaths in the family, update your beneficiary designations accordingly.
Otherwise your ex may receive all of your money!
Keeping your estate planning attorney in the dark.
Beneficiary designations are a part of your whole estate plan.
Your beneficiary designations have an impact on your estate planning goals.
It is important to be fully open and thorough with your experienced estate planning attorney to ensure that your estate plan is comprehensive.
Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”
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