What Are Mistakes to Avoid with Beneficiary Designations?

Many people don’t realize that their will doesn’t control all asset distribution after death. Certain assets – including life insurance, annuities, and retirement accounts – pass through beneficiary designations instead.

Five Critical Mistakes to Avoid

1. Failing to Designate Any Beneficiary at All

Some individuals neglect to name beneficiaries for retirement accounts or life insurance policies. When no beneficiary is named, the institution applies its own rules. For life insurance, proceeds typically go to your probate estate. For retirement benefits, married spouses usually inherit the assets, but unmarried individuals often see their retirement accounts directed to the probate estate – creating negative tax consequences.

2. Failing to Consider Special Circumstances

Not every family member should receive assets directly. This applies particularly to minor children, individuals with special needs, and those unable to manage assets or facing creditor issues. Strategic planning through trusts or other mechanisms may be necessary.

3. Misspelling a Beneficiary’s Name

Incorrect or vague beneficiary designation forms cause problems. Name changes through marriage or divorce can create discrepancies. When names don’t match exactly, delays in payouts occur, and in worst-case scenarios, disputed names may trigger litigation.

4. Forgetting to Update Your Beneficiaries

Life changes demand beneficiary updates. As circumstances evolve, so should your designations. Regular reviews ensure your estate plan reflects current intentions.

5. Failing to Review Choices with Legal and Financial Advisers

Beneficiary designations form part of comprehensive financial and estate planning. Collaborating with professionals ensures designations align with your overall strategy and goals.

If you need help reviewing your beneficiary designations as part of your estate plan, contact The Stegall Law Firm today to schedule a consultation.