When it comes to estate planning, many people are content to draw up a will and leave it at that. That can be a big mistake. The fact is that a will is just one of many necessary estate planning tools, and if you ignore the other documents and designations, your assets could end up going to the wrong person after you pass away. This is especially the case when it comes to beneficiary designations, which hold more power over the distribution of certain assets than your will does.
What is a Beneficiary Designation?
A beneficiary designation is a stipulation that allows you to transfer certain assets directly to a specific person when you pass away. Typically, a beneficiary designation is used on bank accounts, retirement accounts, or life insurance policies. In most cases, a beneficiary designation names a specific individual, but you can also designate your estate as a beneficiary. A beneficiary designation supersedes any directive that may appear in your will, so whoever you name as a beneficiary on your bank or retirement accounts, or on your life insurance policy, will be the person who receives those assets.
Four Common Mistakes to Avoid When It Comes to Beneficiary Designations
1. Failure to name a Beneficiary. If you don’t designate a beneficiary on your accounts, then the estate automatically becomes the beneficiary. This means that your assets will be distributed according to your Will. If you have no will, then the laws of the State of Alabama determine who gets those assets. When that happens, your assets may very well wind up going to someone who you did not intend to receive them.
2. Not Naming a Contingent Beneficiary. What happens if your designated beneficiary dies, becomes incapacitated, or simply does not wish to receive the asset? If you haven’t named a contingent beneficiary, then your assets will, again, be distributed by the estate executor…the same as if you hadn’t named a beneficiary at all. Therefore, it’s important to account for all possibilities.
3. Failure to Account for All Your Assets. Many people have more accounts that are subject to beneficiary designations than they realize. Whether it’s an IRA, a 401 (k), or a mutual fund account, it’s important that every asset for which you can designate a beneficiary be considered. Make a list of all your assets, and then check each one to be sure you’ve prepared properly for what will happen to them.
4. Not Updating Your Beneficiary Designations. Life is full of changes: people pass on, children are born, we fall out with our friends. Similarly, beneficiary designations should change in accordance with our life circumstances. Every time a major life event happens, you should update all of your estate planning documents. You should also review your beneficiary designations periodically to be sure that your assets will not go to an unwanted recipient.
Make Sure Your Estate Plan is Up-to-Date
As important as it is to make sure all relevant accounts name a designated beneficiary or beneficiaries, it can also be a lot to stay on top of. Therefore, it is highly recommended that you seek out an experienced estate planning attorney who can help review your estate plan as needed. We recommend an annual review to ensure the accuracy of your plan, as well as to make updates as dictated by changing legislation or tax law.
Contact Miller Estate & Elder Law
At Miller Estate and Elder Law, we have many years of experience with estate planning and beneficiary designations. Give us a call at (256) 251-2137 to speak with a member of our legal team, or contact us using the brief form below.