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How to avoid big mistakes with beneficiaries

| Aug 27, 2020 | Estate Planning |

Estate planning is often a matter of organizing documents and making sure the right person signs in the right place. Nonetheless, it is easy to let things slip or forget to make vital changes.

When it comes to beneficiaries, a small mistake here or there could result in major consequences. Here are two common mistakes.

Not naming a beneficiary

According to Kliplinger, many people do not understand that a will is not always the final say in beneficiary designations. Crucial documents such as retirement accounts and life insurance policies often have their own set of rules upon the death of the primary account holder. If a person does not name a beneficiary in these instances, the asset does not default to the wishes set forth in a will.

Many financial institutions have their own set of rules concerning where assets will go. This could send someone’s assets to probate court and result in extra costs and delays. Retirement accounts typically default to the surviving spouse, but these could also wind up in probate court  and have negative tax implications. The solution is simple: always name a beneficiary and keep the document current.

Not making timely changes

MarketWatch describes the implications of not keeping beneficiary designations for a retirement account up to date. When a man’s wife passed away, she held a fair amount of money in her retirement accounts. She meant to divide the money among her husband and her two children from a previous marriage, but she only listed her husband as a beneficiary. Therefore, all of the money went to her husband. He did give the children their share of the money, but he had to pay a large tax because the money first went to him.