Designated beneficiaries are an important part of an estate plan. Without the correct level of planning, an heir can be hit with a hefty tax bill. The use of designated beneficiaries can help your heirs avoid probate. Yet, when estate planning is incorrect, the length of probate can increase.
Not naming a beneficiary
When opening an account with a financial institution, you will name beneficiaries. If you do not name beneficiaries, your accounts will reach probate. The probate process can take months to years if the estate is complex. Estate planning can help to identify accounts lacking beneficiary information.
Not naming contingent beneficiaries
Life insurance policies and other accounts can pass to your beneficiary without probate. A designated beneficiary will receive the balance of your account when found. Without a contingent beneficiary, your accounts will pass into probate. Naming a contingent beneficiary is a simple way of limiting the risk of probate. Over time, you can lose track of family members and run the risk of your accounts being passed to your creditors.
Not considering children
Parents usually want to secure their children’s future if they die. If you choose a minor as a designated beneficiary, a court-appointed conservator will manage their funds until they turn 18. Conservators are named to manage the assets of heirs with special needs. In these cases, creating a trust to manage your assets after your death is a better choice than establishing a conservatorship.
Check the personal information of your heirs to avoid costly mistakes during estate planning. Keeping your list of designated beneficiaries updated is a good choice for proper estate planning.