Why Is Beneficiary Designation Important?
When establishing your estate plan, it’s crucial to align the legal documents you create with your retirement account custodian’s and life insurance carrier’s beneficiary designation form.
The Critical Role of Beneficiary Designations
The beneficiary designation will consistently override language contained in your will. Neglecting to identify which assets have beneficiary designations and failing to keep them current can undermine even the most comprehensive estate plan.
Your life insurance or retirement account custodian’s beneficiary designation allows you to specify who receives life insurance proceeds or retirement savings when you pass away. Without coordination with your last will and testament, serious problems can emerge – ranging from financially difficult to emotionally devastating situations.
Common Beneficiary Designation Mistakes
Ex-Spouse Receives Proceeds
The most frequent error involves life insurance policies that haven’t been updated, resulting in an ex-spouse receiving policy proceeds. While rules differ between retirement accounts and life insurance (and may be affected by state and federal laws, plus divorce decrees), the ex-spouse typically receives the funds, and litigation typically fails to overturn this outcome.
Living Trust Complications
Another widespread mistake occurs when individuals establish a living or revocable trust to avoid probate but fail to designate primary and secondary beneficiaries for life insurance and retirement accounts. This oversight can cause these assets to enter the probate process anyway – defeating the trust’s original purpose.
Recommended Actions
Create a comprehensive inventory of all your assets and accounts. Determine which ones include beneficiary designations and identify who is named. If your accounts were established years ago, this review becomes especially important.
Coordinate your beneficiary designations with your estate plan through consultation with your estate planning attorney to prevent these and other potential complications.
If you need help reviewing your beneficiary designations, contact The Stegall Law Firm to schedule a consultation. We are here to help.
