Remember the life insurance policy that you bought when you first became a parent and bought your first home? The one you haven’t thought about much in decades, except to pay annual or semi-annual invoices? Think about the last time you reviewed it to see what kind of coverage it offers, and who you named as a beneficiary.
If you can’t remember, you’re among many people who have assets with beneficiary designations and have no idea what those designations are. This is just one of a number of problems that arise concerning beneficiaries, as noted in the article “Five mistakes to avoid when naming beneficiaries” from the News-Herald.
1–Not naming beneficiaries on accounts. You need to name a beneficiary on every account that provides this option. That includes all investment, retirement and banking accounts and insurance policies. If you don’t name a beneficiary on one or more accounts, your estate will become the beneficiary and your loved ones will need to go through the probate process. Most families try to avoid this through the creation of an estate plan. If a retirement plan asset goes through probate, like an IRA, your loved ones may lose the ability to use the “stretch” payouts based on their own life expectancy, when the tax-advantaged status for a retirement asset is gone when the asset goes to an estate.
2—Forgetting to name a contingency beneficiary on all accounts. Most people name the same person—usually a spouse or a child—as the primary beneficiary on all their accounts. That’s all well and good. However, if that person passes away before you and no contingent beneficiary is named, it’s the same thing as having no beneficiary named. If you and the primary beneficiary die at the same time and there’s no contingent beneficiary, funds go into the probate process.
3—Not using specific and correct names. Stating that your daughter, parents or an aunt is your beneficiary creates big problems for distributing assets. This becomes especially problematic, when there are stepchildren involved. Most states don’t recognize stepchildren as family members, even if you do. If a family member learns that your estate is being probated and tries to make a claim on your estate, just naming “my aunt” could leave the door open for a valid claim. Use the full and proper name of your beneficiaries.
4—Neglecting to update beneficiaries regularly. Just as you must update your will every three or four years, your beneficiaries need to be updated. If a beneficiary has died, married or you are no longer close with them, you need to make those changes. If you divorce and haven’t changed your life insurance beneficiary from your ex-spouse, they could inherit the proceeds.
To be sure that your assets are passed to the people you want, be sure that your estate plan and your beneficiary names are all up to date. Talk with your Cincinnati estate planning attorney every few years to be sure that your wishes are followed.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: News Herald (Nov. 12, 2019) “Five mistakes to avoid when naming beneficiaries”