When it comes to estate planning, many people consider wills to be vital. And while they do serve a very important purpose during the process, they are not the only factor in creating a solid and suitable estate plan.
You must also consider beneficiary designations, which dictate who receives certain assets. This guide explains more about this essential estate planning tool, including how you can prevent major issues.
What are beneficiary designations?
Certain assets, including life insurance policies and retirement accounts, are not included in wills. Instead, these assets have beneficiary associations, which are forms you complete when first receiving the asset. These forms stipulate who will receive the proceeds from policies and accounts and in what amount.
How can you avoid common mistakes?
Much like other aspects of your estate plan, you must review and update beneficiary designations as needed. Failing to update the names included on forms can result in the wrong party receiving benefits. In addition to updating the document after major life changes, such as a new marriage or divorce, you should also conduct a review of your entire estate plan every three years or so.
You must also ensure that names are accurate and spelled correctly. While a misspelled name will not prevent heirs from receiving your assets, it can delay the process or even lead to legal issues if one party disputes the beneficiary designation.
Finally, make sure you actually fill out these documents upon getting a policy or retirement plan. Failure to do so means the company providing the asset will make decisions about who receives it. In the case of life insurance, the policy might end up in probate court, while retirement accounts typically go to the next closest relation, usually a spouse.