You may have made a giant estate planning mistake without even knowing it – forgetting to update the names of your beneficiaries for your employer-sponsored retirement plans, IRAs, life insurance policies, mutual funds, bank accounts, brokerage accounts, annuities and 529 college savings plans.
A lot can happen in a year. Whether small or life-changing, ignore changes to your peril. This is especially true when it comes to your estate planning.
Often, the biggest mistakes we can make when it comes to our estate planning are also some of the easiest to prevent. For example, the consequences of failing to update your beneficiary designations can be catastrophic, while the “fix” is as easy as a phone call or completing a paper (or online) form.
A recent Forbes article titled “The Big Estate-Planning Goof You May Be Making” puts the importance of proper beneficiary designations in perspective.
With the New Year upon us and our resolutions still holding up (or newly renewed?), this may be a good time to review the beneficiary designations we have made for our assets. You see, beneficiary designations are a peculiar thing. They carry with them very important powers for good or ill.
Many accounts from IRAs to policies of one type or another offer the chance to name a beneficiary. Ultimately, the beneficiary will automatically assume ownership of the account upon your passing. That is powerful.
For starters, assets that pass by beneficiary designation escape probate. For a basic tutorial on the distinction between probate and non-probate assets, click here for a good, general explanation from ElderLawAnswers.com.
So, what happens when your life changes and someone named as beneficiary a good long time ago is simply no longer appropriate (read: the ex-spouse, or other horror-story staples)? Well, they still get it.
Bottom line: begin the New Year right with a review of your current estate plan and beneficiary designations. Make sure they are consistent and not in conflict with your wishes.