The internet is filled with articles on avoiding estate planning mistakes. At Boyum Law Firm, one specific mistake we recommend clients look out for is not updating or using beneficiary designations correctly. Read on to learn more about designating beneficiaries and how to avoid common beneficiary designation mistakes.
What is a beneficiary designation?
A beneficiary designation is an asset-distributing estate planning tool commonly used for retirement accounts and life insurance policies. When an individual designates a beneficiary on their account or policy, they’re naming the person who will receive the asset when they die.
Who is a beneficiary?
A beneficiary is anyone you choose to designate on an account. Often times, people name a spouse, children, friends, trusts or charities as their beneficiary. You can have multiple beneficiaries on your accounts and can even choose what percentage each person receives. People often list a primary beneficiary and secondary beneficiary. If the primary beneficiary dies first or cannot be located, the secondary receives the asset.
Where do beneficiary designations go wrong?
When it comes to estate planning, people generally make two types of beneficiary designation mistakes. The first common mistake is not updating accounts containing a beneficiary designation following a major life event. For example, let’s say a husband originally listed his wife as the sole beneficiary on his retirement account. The couple divorces ten years down the road. Now, the husband wants his children to inherit the asset when he dies. He never gets around to officially making the beneficiary change on his document, so in the end, his ex wife still inherits the funds in his account.
The second common beneficiary designation mistake people make is not being aware of the difference between listing a beneficiary on an account and listing an heir for an asset in their last will and testament. When it comes to distributing assets following an individual’s death, their beneficiary designations always trump what their last will says. This means that if a woman leaves her life insurance policy to her son in her last will but has listed her daughter as the sole beneficiary on her policy, her daughter receives the asset.
Routinely checking beneficiary designations can easily prevents these two common estate planning mistakes. Doing so will save your heirs from potential fights and grant you peace of mind.
How can Boyum Law Firm help you?
Boyum Law Firm can help you with your estate planning, Medicaid planning and probate law needs. To contact Boyum Law, click here.
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