Estate planning, when done properly, is an ongoing process. The estate plan you create when you are fresh out of college, single, and without many assets will not meet your needs once you are nearing retirement, married with children, and with a significant estate to protect. One thing people often forget to do with their estate plan is to update their beneficiary designations. To help prevent you from making the same mistake, the estate planning attorneys at Nash Bean Ford & Brown, LLP explain the importance of updating your beneficiary designations.
Who Are My Beneficiaries?
When you think about the need to have an estate plan in place, you likely focus on the desire to provide for loved ones in your absence as well as the hop that your assets will be distributed according to your wishes after you are gone. The people, organizations, or even pets who will receive that assets are your beneficiaries. As you can see, those beneficiaries play a major role in your plan. Although every estate plan is unique, common places where you might find beneficiaries within your own estate plan include:
- Last Will and Testament
- Living trust
- Testamentary trust
- Life insurance
- POD or TOD accounts
- Retirement accounts
- Veterans benefits
Why Is It Important to Update My Beneficiary Designations?
All too often, people take the time to create an estate plan — and then promptly forget about it, operating under the mistaken belief that they are done with their plan. In fact, one of the most common estate planning mistakes is failing to update the plan. Failing to make sure beneficiary designations are current, in particular, can be a particularly detrimental mistake.
Your entire estate plan should be reviewed and revised, if necessary, on a routine basis throughout your life. Although there is no universally accepted time frame, most estate planning attorneys suggest that you routinely review your estate plan every three to five years. When you conduct a routine review of your estate plan, make sure you pay attention to your beneficiary designations to keep them up to date. In addition to routine revisions, there are a number of events that could trigger the need for a more immediate update to your beneficiary designations, such as:
- Birth of a beneficiary – your existing plan documents should account for future beneficiaries with generic, inclusive language. Nevertheless, it is always better to use a beneficiary’s actual name once born to alleviate the possibility of confusion.
- Death of a beneficiary – by the same token, a well drafted plan will include successor beneficiaries in the event a beneficiary dies, or otherwise cannot accept a gift; however, if you are aware of the death of a beneficiary it is always best to update your designations to make the successor the primary beneficiary and to name a new successor.
- Marriage – your own marriage may prompt you to add beneficiaries. If an adult child gets married, however, you might add, or remove, a beneficiary, depending on how you feel about your new son or daughter-in-law.
- Divorce – if it is your own divorce, you want to update your beneficiaries as soon as possible to ensure that your now ex-spouse doesn’t inherit your entire estate.
- Beneficiary reaching the age of majority – because a minor child cannot inherit directly from your estate, you may have a trust in place to protect your child’s inheritance. If your child has reached the age of majority, however, it is now possible to add your child in as a beneficiary throughout your estate plan.
- Estrangement — if, for any reason, you become estranged from a beneficiary, you may wish to remove that beneficiary from your estate plan.
- New accounts/policy/document – a surprising number of people simply forget to name beneficiaries on retirement, investment, and financial accounts. This can cause the asset held in the account to be held up in probate instead of going straight to loved ones in the event of your death.
Contact Estate Planning Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions about updating your beneficiary designations, contact the experienced estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.