In estate planning, there are a number of common mistakes that people fall into. One of these is failing to monitor beneficiary designations. These are important, as they determine where funds from bank brokerage accounts, life insurance policies, retirement packages, and company benefit plans go. When your beneficiary designation forms are not up to date, you risks having those funds go where they are not intended to go.
Because accounts with beneficiary designations pass outside probate, it is not a good idea to rely on your will for disposing of them. For this reason, it is particularly important to keep beneficiary designations updated.
For married couples with joint survivorship accounts, there is an additional consideration. When one spouse dies in such an arrangement, the surviving spouse will automatically receive sole ownership. This works fine for some couples, but others will want to list secondary beneficiary in case the order of death is turned around.
The important thing with all this, as we said above, is to keep beneficiary designations updated. For bank and brokerage firm accounts, transfer on death and payable on death forms need to be updates. Tax-favored retirement accounts, life insurance policies, annuities, employee benefit plans, and annuities all have beneficiary designations. Another type of account with beneficiary a designation is the 529 college account. Each of these should be reviewed periodically and updated, particularly after major life events, particularly divorce.
For some people, keeping beneficiary designations updated is the bulk of their estate plan, at least from the perspective of assets. So it is important to keep an eye on beneficiary designations.
Source: Marketwatch, “Don’t make this common estate-planning error,” Bill Bischoff, September 17, 2013.