One important aspect of estate planning involves naming beneficiaries for your assets. Whether it is a life insurance policy, retirement account or other financial assets, you must use proper practices to designate beneficiaries.
You must also be aware of common beneficiary designation mistakes to ensure your estate plan serves your best interests.
Regularly review and update
Because life can change frequently, make it a habit to review and update your beneficiary designations. Changes such as marriage, divorce, births or deaths in the family may require adjustments. Failing to update beneficiaries could result in assets going to unintended recipients.
Specify percentages, not just names
Clearly identify the percentage of the asset each beneficiary should receive. Instead of listing specific amounts or equally dividing assets among beneficiaries, assigning percentages ensures a fair distribution regardless of changes in the total value of your assets over time.
Be mindful of minors
When designating beneficiaries, consider the age of potential recipients. If you name a minor, the court may need to appoint a guardian to manage the assets until the child reaches the age of majority. To avoid complications, consider setting up a trust or naming a custodian to oversee the assets.
Account for contingencies
You should also plan for contingencies by designating secondary or contingent beneficiaries. This ensures that if your primary beneficiaries are unable to inherit the assets, a backup plan is in place.
Coordinate with your estate plan
Your beneficiary designations should align with your overall estate plan. If you have a will or trust, ensure that the beneficiaries listed in those documents match those on your financial accounts. Consistency minimizes confusion and helps your loved ones navigate the legal processes more smoothly.
By using best practices to designate beneficiaries, you can rest assured your loved ones will receive your assets as you wish. You will also experience immense peace of mind knowing that your estate plan meets your needs.