A Last Will and Testament is not the only estate planning tool at your disposal even though having a solid Will in place is important. According to Kiplinger, assets like life insurance policies and retirement accounts pass via beneficiary designations.
Much like your will, you must pay close, careful attention to beneficiary designations to ensure proper handling of your estate after you are gone. Here are a few common mistakes, and how you can avoid them.
Listing a minor family member as beneficiary
An heir cannot claim an asset until they are of legal age. As a result, naming a minor on accounts can lead to many legal headaches, including the need to establishing a guardianship. A guardian is court-appointed to oversee the finances of minors until they reach age 18. Instead of naming minor beneficiaries, consider creating trusts in your Will for the benefit of the minors. In this case, the trust retains assets, and a trustee you choose oversees them.
Forgetting to update forms and documents
Your estate plan should change right along with your life. For example, if you get divorced and have your former spouse named as a beneficiary, this information will remain until you make the change. As a result, you should review your documents any time your life changes drastically, such as after a divorce, new marriage, or the birth of a child. You should also review your estate plan every three to five years or so, just in case.
Not filling out beneficiary designations in the first place
If you fail to fill in any beneficiaries’ names, lots of issues will arise. When it comes to life insurance policies or retirement accounts, your estate receives the proceeds. Once the funds are in your estate, they are subject to the claims of your creditors. It is better on life insurance policies and retirement accounts to name beneficiaries or trust for minor beneficiaries.
No matter what your Will says, the court will defer to the information included on beneficiary designation forms should a dispute arise. As a result, they are an essential aspect of the estate planning process.