When it comes to assets like retirement accounts and life insurance policies, beneficiary designations dictate who receives the proceeds after you are gone. Unlike other assets, which you can include within your will, assets with beneficiary designations stand independent of other estate planning tools.
To ensure your loved ones receive their inheritances according to your wishes, it’s important to avoid common beneficiary designation mistakes. Here are a few issues and how you can sidestep them when estate planning.
Failing to review designations
You will usually complete forms related to beneficiaries upon first opening a retirement account or purchasing a life insurance policy. As a result, this information may become outdated over time as your family and needs change. That is why you must update forms as needed, which requires a periodic review.
Filling out forms incorrectly
Regular reviews can also help you catch errors within forms, such as misspelled names. You will also need to update the names of beneficiaries as they change, such as when a person gets married or divorced. Getting the names wrong does not mean your heirs will not receive their inheritances, but it can result in holdups when your wishes are unclear.
Not filling out forms at all
In the event you forget to complete designation forms, your heirs may not receive their inheritances. Even if you include your desires within your will, beneficiary designation forms supersede it. Accordingly, the company holding the asset will use its own rules and guidelines when dispersing the proceeds.
In this case, your heirs may not receive assets according to your wishes. This highlights the importance of due diligence when estate planning, no matter what tools you use.