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Importance Of Updating Beneficiary Designations
There are certain assets that may be transferred outside of the process of probate that involve the use of beneficiary designations. Beneficiary designations are typically chosen upon opening a bank account, retirement account, or life insurance policy but can sometimes be forgotten. After your passing, the account's assets will be transferred directly to the beneficiary you chose.
Beneficiary designations are not distributed according to the terms of a person's Will. Instead, the assets are transferred directly to the beneficiaries, and they are not included in the probate process, provided that a beneficiary has been identified. Avoiding probate can be enticing, but because these designations supersede a Will, they require careful consideration.
Considerations Before Designating a Beneficiary
Choosing a beneficiary should be done with care and deliberation. It would be best if you considered the following to avoid and eliminate possible unanticipated repercussions and disasters in the future.
The recipient should be financially savvy and able to manage potentially vast amounts of money.
You should have a plan in place if the designated beneficiary becomes incapacitated or dies before you.
If the named beneficiary is a minor, depending on the amount of money the minor could inherit, it may be required for the minor to have a conservatorship or someone responsible to hold the asset in trust for the minor.
You should name successor beneficiaries to avoid the asset being distributed to your probate estate.
The Importance of Updating Beneficiary Designation Regularly
Pursuant to GA Code 1981, §33-15-61, the owner of a benefit contract has the right to change the beneficiary or beneficiaries at any time. However, few people checked and updated them.
It is remarkable how many people have past spouses or deceased relatives still listed as beneficiaries on retirement accounts or life insurance policies from years ago. Without updating these beneficiary designations, your assets might be transferred to individuals against your wishes or put your loved ones in a challenging financial situation. There are certain life events that trigger the review of beneficiary designations, those events include:
Divorce
Marriage
Making a major purchase like a home
The birth of a child
Death of the sole beneficiary
Updating estate planning documents.
It is equally vital to review and amend beneficiary designations as it is to name an acceptable beneficiary. After significant life events such as marriage, adoption, births, divorce, or the death of a loved one, the designations should be updated. By reviewing and revising these designations based on your current condition, your preferences will be carried out as you intended.
These are some of the most overlooked estate planning documents. As such, this article should encourage you to review your beneficiary designations as soon as possible. Contact Thompson Mungo Firm today to schedule a meeting where we can help put your mind at ease about beneficiary designations and other estate planning matters.
Key Takeaways
Beneficiary designations determine who receives certain assets, such as life insurance proceeds, retirement accounts, and payable-on-death accounts, often without going through probate.
Beneficiary designations generally take precedence over the instructions in your will for assets that pass by beneficiary designation.
Failing to update beneficiary designations after major life events can result in assets passing to unintended individuals.
Marriage, divorce, the birth or adoption of a child, the death of a beneficiary, and significant financial changes are all good times to review your beneficiary designations.
Naming both primary and contingent beneficiaries can help ensure your assets are distributed according to your wishes.
Reviewing beneficiary designations regularly is an essential part of maintaining a comprehensive estate plan.
An estate planning attorney can help ensure your beneficiary designations are coordinated with your will, trust, and other estate planning documents.
Frequently Asked Questions (FAQs)
What is a beneficiary designation?
A beneficiary designation is a legal instruction that identifies who will receive certain assets after your death. Beneficiary designations are commonly used for life insurance policies, retirement accounts, payable-on-death (POD) bank accounts, transfer-on-death (TOD) accounts, and some investment accounts.
Why is it important to update beneficiary designations?
Outdated beneficiary designations may result in assets passing to someone you no longer intend to inherit them. Reviewing your beneficiary designations after major life events helps ensure they reflect your current wishes and work together with your overall estate plan.
Does a beneficiary designation override a will?
In many cases, yes. Assets that pass by valid beneficiary designation generally transfer directly to the named beneficiary and are not distributed according to the terms of your will. This is why keeping beneficiary designations current is so important.
When should I review my beneficiary designations?
You should review your beneficiary designations whenever you experience a major life event, such as marriage, divorce, the birth or adoption of a child, the death of a beneficiary, retirement, or significant changes in your financial circumstances. An annual review is also a good practice.
What assets typically have beneficiary designations?
Common assets include life insurance policies, retirement accounts such as 401(k)s and IRAs, annuities, payable-on-death bank accounts, transfer-on-death investment accounts, and certain financial products that allow beneficiary designations.
Should I name contingent beneficiaries?
Yes. Naming one or more contingent beneficiaries provides a backup plan if your primary beneficiary dies before you or cannot receive the inheritance. This may help reduce complications during estate administration.
Can I change my beneficiary designation?
In many situations, yes. Most beneficiary designations can be updated by following the procedures established by the financial institution or insurance company, provided you remain legally authorized to make changes. Certain legal agreements or account-specific rules may affect your ability to change a beneficiary.
How do beneficiary designations fit into an estate plan?
Beneficiary designations are an important part of a comprehensive estate plan. They should be reviewed alongside your will, trust, powers of attorney, and other estate planning documents to help ensure all of your assets are distributed according to your overall goals.
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