All experienced estate planning attorneys know how beneficiary designations play an important role in the estate planning process. Oftentimes a large portion of a client’s wealth is controlled by various beneficiary designations. For example, a portion of a client’s wealth may be controlled by life insurance with beneficiary designations or by financial accounts with “transfer on death” or “payable on death” designations.
Estate planning is an ongoing process in which updating beneficiary designations may need to be done periodically. The client may have married or divorced, or they may have welcomed new children to their growing family, whereas others may have had a falling out with an adult child or a sibling, or there may have been a death in the family.
For some, it is common practice to draft an estate plan and file it away in a drawer for safekeeping, where the documents sit for decades. We cannot stress enough how important beneficiary designations are, especially since a large portion of a client’s wealth is often controlled by beneficiary designations.
When someone designates a beneficiary on their 401(k) when they get hired, or when they name their spouse as a beneficiary on their life insurance policy when they first get married, as the years go by these designations may be long-forgotten.
It’s not unusual for a person to make a designation early in life and to forget all about updating it. In some cases a state statue may save the day, but in others it may not.
Keep in mind that certain assets such as qualified plans, IRAs, bank accounts, and life insurance policies allow you to select a specific beneficiary. When you designate a beneficiary, those assets will pass to the named beneficiary upon your death, without the need for probate. It’s very important to review these designations periodically and as your life changes to make sure you update them accordingly.