Beneficiary designations must be “aligned” properly for an effective estate plan.
Estate planning seems simple.
You get a last will and testament.
You sign it.
Everything is set.
According to a recent Kiplinger article titled “Beneficiary Designations – The Overlooked Minefield of Estate Planning,” you may have overlooked a very significant aspect of estate planning.
You have not considered beneficiary designations.
Chances are you have assets with beneficiary designations.
These typically include annuities, IRAs, 401(k), and life insurance policies.
If you do not account for these, you may leave your loved ones with a mess to sort out when you die.
What are common issues with beneficiary designations?
Not understanding limitations to your last will and testament.
Do instructions in your last will and testament control the instructions in your beneficiary designations, if the two are in conflict?
Your last will and testament only has authority over assets subject to probate.
Because assets with beneficiary designations bypass probate, your last will has no control over them unless the last will is the beneficiary.
Failing to update your accounts.
Life circumstances change.
You may move to a different job.
If you had a 401(k) with your former employer, it is easy to forget about it.
Depending on your personal circumstances, by not updating your beneficiary designations you may leave the asset to an ex-spouse or to no one.
You should review and update your beneficiary designations regularly.
Not having a contingency plan.
We cannot predict exactly what will happen in our lives.
As the recent COVID-19 experience has demonstration, we cannot even predict “generally” what will happen.
In some cases, you may outlive your beneficiary.
You also may die at the same time in an accident.
Do you want the heirs of your original beneficiary to receive the asset or do you want someone else to receive the asset when you die?
You should make plans so the correct person receives the funds.
Whenever you communicate with the administrators of assets passing by beneficiary designation, you should keep electronic or hard copy records.
Human error can strike at any time.
Store these records with your estate planning documents.
Discuss your beneficiary designations with your experienced estate planning attorney to ensure they align with the rest of your plan.
Reference: Kiplinger (March 4, 2020) “Beneficiary Designations – The Overlooked Minefield of Estate Planning”