When it comes to estate planning, beneficiary designations are one of many important tools. However, common mistakes can jeopardize your plans and create major issues for loved ones.
By being aware of common errors and oversights, you can effectively avoid them when creating your estate plan.
Understand the impact of beneficiary designations
When you designate beneficiaries, you are deciding who receives your assets after you are gone. This is not limited to just your will; beneficiary designations on accounts like life insurance, retirement plans and bank accounts take precedence.
Keep beneficiary information updated
Life is dynamic, and circumstances change. Marriages, divorces, births and deaths can impact your initial beneficiary designations. That is why you must regularly review and update your information to ensure it aligns with your current wishes and circumstances.
Be specific and clear
Vague beneficiary designations can lead to confusion. Instead of listing a generic term like “spouse” or “children,” provide specific names and details. This clarity eliminates ambiguity and reduces the likelihood of disputes or delays in asset distribution.
Avoid naming minors directly
While you may want to provide for your children or grandchildren, naming minors as direct beneficiaries can create complications. Legal guardianship issues may arise, and it is usually more prudent to establish a trust to manage the assets on behalf of the minor until they reach adulthood.
Consider contingent beneficiaries
Along with your initial choices, you can also name contingent beneficiaries. Designating contingent beneficiaries ensures that your assets will pass to the next designated individuals, avoiding legal complexities.
Proper planning of beneficiary designations can make for a stronger estate plan overall. It can also offer immense peace of mind to you, as well as your loved ones.