Beneficiary designation can be as easy or complex as you want, but many people make mistakes that affect their loved ones once they pass. Your choices can even affect you throughout your life. With this advice, you can avoid these mistakes and make your inheritance much simpler for everyone involved.
Never Naming a Beneficiary
One of the biggest mistakes people make with their retirement accounts, trusts, and life insurance policies is not naming a beneficiary to inherit the money and property. Without naming a beneficiary, your family or friends will have to go directly through the courts where your assets will be divided through the probate process. Every state has its own probate process, but a stranger is usually the individual that determines who receives your money and property. In some cases, it’ll be divided equally among all living relatives, which can often include ex-spouses.
Naming Minors as Beneficiaries
Naming your child as your beneficiary might seem like a good idea, but if they’re under 18, you may need to reconsider. The issue with naming a minor as your beneficiary is that they may not receive the money until they’re legally an adult. Until then, a guardian has the freedom to use the money however he or she wants. This means that, by the time the minor turns 18, they may not have much inheritance left. You can avoid this by setting up a trust fund rather than naming them as the primary beneficiary of your assets.
Not Coordinating Your Will and Beneficiary Designation
Many people think their will is the last word on who receives their assets, so they don’t bother changing their beneficiary designation once they’ve updated their will. Unfortunately, this isn’t true. In reality, your beneficiary designated automatically overrides your will. Without changing your beneficiary designation, whoever you assigned last will receive your assets. For example, if you listed your ex-partner as your beneficiary and your current partner in your will, your ex will receive everything.
Failing to Name a Contingent Beneficiary
Most people name a primary beneficiary of their assets (including their trust and life insurance). This is the person who will receive your benefits when you pass. However, what happens if that person isn’t available once it’s time for them to inherit your money and property? In some cases, this can be a spouse who passed before or at the same time as you, in which case your assets will go into probate. This is why naming a contingent beneficiary is so important. A contingent beneficiary is an individual who is second-in-line to receive your assets in case the primary beneficiary is not available.
Not Updating your Beneficiary Designation
Life events can change who may inherit your assets, so it’s important not to forget about your beneficiaries even after you update them. For example, if you got a divorce, you may not want your ex-partner to receive your money or property. Alternatively, if you recently got married, your husband or wife may now be the person you want as your primary beneficiary. Each year and after major life events, it’s important to promptly update your beneficiary designation to represent the most current information possible.