Mistakes in beneficiary designations can lead to unintended consequences and create complications for your heirs. Here are some of the top mistakes people make on their beneficiary designations:
Failing to Name a Beneficiary: Funds with flow through your estate and probate causing delays and your loved ones to receive a smaller portion of your assets.
Not Naming Contingent Beneficiaries: Some people only designate primary beneficiaries and overlook naming contingent beneficiaries. If a primary beneficiary predeceases you and there are no contingent beneficiaries, the assets may end up going through probate or to your estate, delaying distribution.
Outdated Information: Failing to update beneficiary designations after major life events such as marriage, divorce, birth, adoption, or the death of a beneficiary can lead to assets being distributed in a way that does not align with your current wishes.
Ignoring Legal Requirements: Certain accounts and policies may have specific legal requirements for beneficiary designations. Ignoring or not understanding these requirements can result in complications and unintended consequences.
Unequal Distributions: Failing to specify the percentage or share of assets each beneficiary should receive can lead to disputes among heirs or unintended distributions. Clearly outlining the distribution percentages helps avoid confusion.
Assuming Joint Ownership Covers Everything: Jointly owned assets, such as a joint bank account or a house owned with rights of survivorship, automatically pass to the surviving joint owner. However, this doesn't apply to all types of assets. Other accounts and policies may still require designated beneficiaries.
Forgetting to Update Retirement Accounts: Retirement accounts, such as 401(k)s and IRAs, often have beneficiary designations that bypass probate. Forgetting to update these designations can result in assets going to an ex-spouse or an outdated beneficiary.
Not Coordinating with Estate Planning Documents: Beneficiary designations should align with your overall estate plan. Failing to coordinate beneficiary designations with your will, trust, or other estate planning documents can lead to inconsistencies and unintended consequences.
Naming Minors Directly: Naming a minor as a direct beneficiary without setting up a trust can lead to complications. Minors cannot directly inherit assets, and a court-appointed guardian may be needed, causing delays and added legal expenses.
Naming Special Needs Individuals as Beneficiaries: This can lead to unintended consequences including disqualification from government benefits which can be avoided with a Special Needs Trust.
To avoid these mistakes, it's crucial to regularly review and update your beneficiary designations, coordinate them with your overall estate plan. We can help ensure that your beneficiary designations align with your current wishes and are in compliance.
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