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How to avoid beneficiary designation issues

On Behalf of | Feb 20, 2024 | Estate Planning

Along with wills and trusts, beneficiary designations are an important estate planning tool. They give you power over who receives the funds from life insurance policies and retirement accounts after you are gone.

Like the rest of your estate plan, avoiding common beneficiary designation mistakes ensures that your loved ones experience a smooth process.

Not updating beneficiary designations regularly

Life changes happen, such as marriages, divorces, births and deaths. Failing to update your beneficiary designations to reflect these changes can result in your assets going to the wrong individuals, which will be contrary to your wishes. It is also a good idea to review your entire estate plan every few years to ensure it continues to meet your needs.

Naming minors as direct beneficiaries

Designating individuals under the age of 18 as direct beneficiaries of assets can also create complications. Minors cannot legally manage inherited assets, so a guardian or custodian must oversee the assets until the minor reaches the age of majority. Instead, set up a trust to hold assets for the benefit of minors.

Forgetting to name contingent beneficiaries

It is important to name contingent beneficiaries who will receive your assets if your primary beneficiaries are unable to do so. Without contingent beneficiaries, your assets may end up in probate, delaying distribution and potentially incurring unnecessary costs.

Failing to coordinate with your estate plan

Your beneficiary designations should align with your overall estate plan. Failing to coordinate these documents can lead to conflicts and unintended consequences. Ensure that your beneficiary designations complement the provisions outlined in your will or trust.

Properly managing your beneficiary designations is one of many important aspects of estate planning. By taking the above steps, you can rest easy about the future.