Along with many other estate planning tools, beneficiary designations are a crucial part of passing your assets along to heirs after you’re gone. They apply to things like retirement accounts and life insurance policies, the proceeds of which will automatically go to whoever is designated on the form. While this is certainly convenient, you must ensure that you’re taking the right steps, as explained by Kiplinger.
The biggest concern is not updating beneficiary designations when necessary. For example, if you’re faced with a divorce it’s essential that you look over all estate planning documents to ensure they still reflect your wishes. Keep in mind that beneficiary designations override wills and trusts. As a result, if you update other documents but keep beneficiary designations the same, your assets will go to those parties named regardless of what your will states.
There are also issues if you fail to fill out beneficiary designation forms. In most cases, this will result in your assets going to probate court, which is a lengthy and often expensive process. If you’re married at the time of your death, these assets can also be distributed to your current spouse. However, there are tax planning issues that can come into play which makes it exceedingly expensive for your heirs as well as your estate.
Lastly, there is always a risk that you filled out a form incorrectly and depending on the nature of the error, your assets may also end up in probate. That’s why it’s so important to go into estate planning with the proper support. An attorney can review your documents and ensure they’re filled out to your liking. An attorney can also help you deal with estate planning issues that may arise during the divorce process.