While wills and trusts are crucial when it comes to estate planning, they are not the only tools available. Life insurance policies, retirement accounts, and other assets come with beneficiary designations, which stipulate who will receive those assets after you die.
Accordingly, it is up to you to complete forms that provide information on your desired beneficiaries. It is also up to you to ensure these designations are properly maintained. Here are a few ways you can avoid common issues and oversights.
Make sure information is correct
You must use the correct name of the beneficiary when filling out designation forms. Failure to do so can lead to confusion after you die, particularly if several family members have similar names. By the same token, be sure to update names when beneficiaries get married or divorced. While it is usually easy to remedy errors, they can also delay inheritances.
Consider the age of the beneficiary
Although you can leave money to minors in your estate plan, doing so through a will or establishing a trust are better options. If the beneficiary is underage, the court will need to choose a conservator to manage the inheritance until the child reaches legal age. In addition to the complexities of selecting a conservator, the process can also be quite costly. If you leave assets to a minor in a will, you can also pick a guardian to both provide care and manage the money.
Update designations as needed
Keep in mind that beneficiary designations supersede other estate planning documents. If there are discrepancies between the designation and your will, the designation takes precedence. Accordingly, you must review your beneficiary designations after major life changes. New marriages and divorces, the birth or adoption of a child, and other circumstances should trigger a review of your total estate plan.
Even if no major changes have taken place, you should review your estate plan every three years or so. Being proactive ensures it continues to meet your expectations.