Table of Contents

By drafting a Last Will, many people think that it will control each and every asset. However, the fact is that there are many assets that are transferred by beneficiary designation. A beneficiary designation is said to be the competency to depute a person who will heir your asset after your death, in the form provided by the financial institution holding that asset. Such assets include life insurance, annuities, and retirement accounts, etc.

Estate Planning-

While designating an inheritor provides you with the easiest way to be assured regarding the transfer of your assets easily and directly to your loved ones, it can also prove to be problematic as well. You must ensure that you have your beneficiaries nominated as per your current life and wishes. Your beneficiaries must be someone who could be easily identifiable by the custodian and hence the involvement of the court can be avoided, saving time and money involved in this procedure.

Estate Planning Mistakes-

Below we have summarized some common mistakes but critical mistakes while designating a beneficiary:

1. Not naming a beneficiary: Many people don’t fill the beneficiary designation and hence the account is without any beneficiary. The reason can be that people leave it for later and forget, while some people never get around filling the form. However, in such a case, the financial institutions have their own rules to follow regarding your assets after your demise. Like life insurance company will put your assets in your estate and fate will be then decided by probate, while there are different rules for retirement accounts depending on your marital status. If you are married, then your spouse will get the assets while if you are not married then the assets will go into the estate which will invite both probate and income tax.

2. Not considering the circumstances of the beneficiary: Every beneficiary can’t receive the assets directly like a minor, special need individuals, spendthrift individuals or individuals with creditors’ issue. In the case of a minor who is legally incompetent to claim the assets, a conservator is required to manage the asset until the minor reaches adulthood. Conservator so appointed by the court can be costly, and he/she needs to file a bond with court purchased from the financial institution which again is expensive. If the special need people inherit such assets, then they can lose valuable government benefits as they will be disqualified due to owning too many assets. For the beneficiary with creditor issues and being spendthrift, the can lose the assets in one go due to mismanagement of the assets. To avoid such cases, it is advised to name a Trust as a beneficiary along with a trustee who will manage the asset accordingly.

3. Relating a will with the beneficiary designation: Many people write “as per my will” against the beneficiary designation which is not accepted by the financial institution. This is because the will addresses the assets of your estate, while such accounts are not a part of your estate. Also, it is considered to be without a beneficiary or a non-person beneficiary and thus the beneficiary will not get the benefits as provided by such accounts like IRA.

4. Writing amount instead of percentage: Some people designate beneficiaries with a specific amount of money which might sometimes be problematic especially when the account’s balance is lower than your specified amounts at the time of your death. In such a case when the account’s amount is less than the stated amount then all the beneficiaries might not get the benefit and the desired wishes might not get fulfilled. Hence, the most effective way to designate your beneficiaries with maximum benefit is to distribute the asset in percentage or putting an alternate provision if the amount falls below the slated amount.

5. Not updating beneficiaries over time: It is very natural that with due course of time your priority and relationship changes with the circumstances. While naming a beneficiary is a very important part of your estate planning, it is equally important to review and update it (if required), according to your current wishes with the change in life.

Before submitting your beneficiary designation, it is advised to consult with an attorney to check and be assured that the desired results are achieved. If you have already designated your beneficiaries, then you must review and check them to ensure that they meet the requirements of the financial institution holding the account. By ensuring this you can be assured that your beneficiaries will receive the assets smoothly at any point of time after your death.