Founder and Author of the Side by Side Planner
Imagine this: a person goes through the trouble of hiring an attorney, making an estate plan, and keeping the plan accessible to their loved ones in an emergency. Then, their loved ones discover a glitch. The deceased’s life insurance policy is payable-on-death to only one of the three children, as it was created many years ago when the family only had one child.
Now, it’s up to that child to decide: was this my loved one’s true wish for this money, or do I have to share it? What happens now?
This one task, if left undone, can ruin an otherwise perfectly good estate plan: I’m talking about changing your beneficiary designations.
Beneficiary designations are separate from an estate plan. They can override the preferences stated in your will. When your beneficiary designations and your estate plan don’t match, the issue can create delays for your family and cost more in attorney time.
If you’ve created a trust for your minor children or grandchildren in your will, but the beneficiary designations aren’t properly assigned to the trust, money can bypass the trust and go right into the children’s pockets. While the state may create a trust for a minor child, it will pay out in full at age 18. Then, it will not provide for them as you wished, for their education or healthcare.
If you have a revocable living trust, there can be unexpected tax consequences or even court fees associated with this discrepancy, if your estate has to go to probate because of a large amount of money, such as a life insurance policy.
Changing your beneficiary designations is usually easy. If you have benefits through your employer, talk to your human resources representative about how to change or update your beneficiary choices.
If you have an annuity, IRA, or other financial products, each financial institution has its own form. Visit the institution’s website or call a representative for help.
These are small tasks, but when you have many accounts, they can become time-consuming. An estate planning attorney’s office may have someone on their staff who can help you to make the changes. If not, your CPA may be able to assist you. Seek professional help to ensure that your plan will function properly.
I have seen too many good estate plans go to waste when beneficiary designations weren’t coordinated with a plan. This is one of the most important tasks of estate planning that is too often overlooked.
To make sure your estate plan is as complete as possible, check out my articles “Estate Planning 3-2-1 – Part 1: Three Key Lists to Keep With Your Estate Plan” and “Estate Planning 3-2-1, Part 2: Two Ways to Ease Family Tension By Personalizing Your Estate Plan.”