It’s easy to overlook this important detail. However, an outdated beneficiary designation can completely wreck your intentions.
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 folks to 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 was 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 Remember: regardless of what’s written into a will or trust, it will be superseded by whatever beneficiary designations are on file.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 401(k) 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.
A word about contingent beneficiaries: in the event the persons you name do not survive you, designate who would be next in line to avoid any guesswork or uncertainty. If any of your beneficiaries are minors, you should be sure to specify who will be handling the money for them.
Reference: Wilmington Business Insights (September 1, 2017) “Incorrect Beneficiary Designations Can Undermine Estate Planning”