Beneficiary designation pitfalls
There are some major estate planning mistakes that people make with their beneficiary designations on life insurance and retirement accounts. Let’s go through a few of the most common ones that estate planning lawyers see happen every day when we administer estates.
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1. Forgetting to update your beneficiary designations
The most common estate planning fail when it comes to beneficiary designations is that people forget to update their beneficiary designations as life changes. Many people open their first retirement account and get their first life insurance policy way before they every marry or have children. Sometimes they get these assets through their very first grown-up jobs, and then never roll these over to their new accounts when they move jobs. So it’s not uncommon that someone dies and they have they have their college girlfriend or their sibling named on their policies. And guess what: It doesn’t matter what their will or trust says; the beneficiary designation controls. So if your beneficiary designation says it goes to your ex-boyfriend from your partying days, that’s who it will go to, even if you’re married and have kids.
2. Naming your minor children
It’s super common that people first name their spouse, then name their children, on their policies as beneficiaries. The problem is that if you die and your kids are minors, the policy will have to go through a court process called probate. Most people buy life insurance so that their spouses and children will be cared for if they die, and so they don’t want the proceeds to be tied up in court for several months to a few years. They want the funds available immediately. Unfortunately, it won’t work out that way if your kids are minors and they are named as beneficiaries.
3. Naming a family member and trusting that the money will go to the kids
Many times, because parents want to avoid the scenario outlined above, they will name a friend or family member to receive the proceeds, and they trust that the money will be used to care for the kids. Unfortunately, it doesn’t necessarily work out that way. When you leave proceeds to someone, that money becomes their money. So if that person has creditors or gets divorced, that money that you want to go to your kids can be taken away.
These situations can be solved by setting up a revocable living trust that avoids probate and naming your trust as the beneficiary on your policies. It’s the easiest, cleanest way to do your planning.
If you want to get started on your estate plan, read about our estate planning services and schedule an appointment.
To your family's health + happiness.
~Candice N. Aiston
P.S. Want to get started slowly but surely, naming guardians for your kids? Check out our Guardian Plan kit.
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Candice N. Aiston is an Legal Planning Attorney for Estates + Businesses in the Portland, Oregon area. She helps people to prepare for a lifetime of security, prosperity, and guidance. If you would like to receive her free reports, please visit http://aistonlaw.com/ to sign up. Follow her Facebook page for daily planning tips: https://www.facebook.com/aistonlaw/.