If you have a life insurance policy or retirement plan, you must take certain actions when it comes to estate planning. These assets have beneficiary designations that say how much of the asset should go to an heir after you are gone.
Because these estate planning tools exist outside of wills and trusts, you must take the right steps to ensure your heirs receive assets as you intend. Here are a few mistakes to avoid.
Providing assets directly to a minor
Beneficiary designations pass assets directly to the recipient without the need for probate. If you name a minor as a beneficiary, the court requires a conservator to handle the asset until the minor reaches the legal age. In this case, it is usually better to provide assets to minors using other estate planning tools, such as a trust.
Forgetting to fill out the form
Some people may forget to fill out beneficiary forms when initially opening an account or purchasing a life insurance policy. In this event, the company responsible for the assets may use its own rules to disperse assets after you die. State laws may also dictate how your beneficiaries receive assets. In many cases, the asset will pass directly to a surviving spouse in case the form is blank.
Not updating information
You should review forms every few years or so to ensure they are still accurate. You should also review beneficiary information after major life events, such as a new marriage or the birth of a new child. Failing to do so may result in an heir getting left out of your estate plan.
Keep in mind that information contained within beneficiary designation forms supersedes information within your will. That means this information must be accurate to ensure your heirs receive assets in the correct manner.