There are many things to consider when estate planning. One of the most important is who will receive your assets after you die. Unfortunately, many people make mistakes when choosing their beneficiaries, leading to estate litigation and other problems.
Not updating your beneficiary designation form
Your life circumstances are always changing and that includes your beneficiaries. You should review your beneficiary designation form at least once a year to make sure it is still accurate. For example, you may need to change a beneficiary if you get divorced or have a child. Also, keep in mind that some assets, such as retirement accounts and life insurance policies, have their own beneficiary designation forms.
Not naming a contingent beneficiary
A contingent beneficiary is someone who will receive your assets if your primary beneficiary dies before you do. It’s important to name a contingent beneficiary in case something happens to your primary beneficiary. Otherwise, your assets may go to someone you don’t want them to go to, such as an estranged family member.
Naming a minor as a beneficiary
If you name a minor as a beneficiary, the court may appoint a guardian to manage the assets on behalf of the child. It’s generally better to name a trust as the beneficiary of your assets if you want to leave them to a minor. That way, you can specify how and when the child will receive the assets.
Failing to account for estate taxes
If your estate is large enough, it may be subject to estate taxes. This is something you need to take into account when choosing your beneficiaries. You may want to consult with a financial advisor to see how estate taxes will affect your estate.
Not considering estate planning options
There are many estate planning options available, such as trusts and wills. You should consider all of your options before choosing a beneficiary to make sure your assets get distributed the way you want.
When you fail to consider these factors, you may make a mistake that could cause problems for your beneficiaries. It’s important to take the time to estate plan carefully so that your assets will be distributed in accordance with your wishes.