When making or reviewing an estate plan, it is important to remember to check the beneficiary designations on your financial accounts.
Beneficiary designations work differently and separately from bequests in your estate plan. Beneficiary designations are designed to pass assets from the financial institution directly to heirs. In this way, it avoids probate and the estate entirely.
Keeping beneficiary designations current and in line with your estate plan can streamline the estate planning and probate process. However, beneficiary designations that are allowed to become outdated or inconsistent with the larger estate plan can lead to problems.
One common problem occurs when a new will is created or an old one is updated. Time needs to be made to make sure none of the beneficiary designations contradict the will. If an account does not name a beneficiary, it can be a good idea to do so immediately.
Another common issue is when a designated beneficiary dies or is otherwise unable to claim the money. In most cases, a beneficiary that does not survive you will not be passed to their heirs. Some accounts allow you to name a secondary beneficiary. Most often, the funds drop into your estate to be distributed according to your will or through intestacy.
It may also be wise to consider naming your trust as your beneficiary. In some cases, leaving a lump sum to your heirs can be detrimental to them. Mental or physical impairment that would prevent them from managing their own affairs, aggressive creditors that would seek to claim the assets, or even the heir’s own bad judgement are all common reasons for designating your trust as the beneficiary.
An estate planning attorney can help you decide who you should designate as the beneficiary of your financial accounts. An attorney can work with you or your chosen financial professional to make sure the beneficiary designations are kept current and consistent.