Bay Area Estate And Tax Planning Law Firm

Why you need to pay attention to beneficiary designations

On Behalf of | Jul 24, 2023 | Blog, Estate Planning |

California residents seeking an easy way to leave assets to their heirs frequently select financial instruments that designate beneficiaries who will receive the assets if the owner dies. However, some people make the mistake of not looking at these designations after establishing them, leading to potential problems when the owner dies.

The importance of beneficiary designations

Beneficiary designations are an essential part of estate planning. What many people don’t realize is that the designations on documents requiring beneficiaries supersede wishes in a will. For example, if your will indicates you want your spouse to receive all of your assets, yet you have an account that names an adult child as a beneficiary, your spouse will not receive the assets from that account after your death. Such discrepancies can cause havoc for an executor and your heirs after you pass away.

Documents that include beneficiary designations

  • Many different financial accounts ask for beneficiary designations. These include but are not limited to the following:
  • Employer-sponsored retirement plans
  • Individual IRAs
  • Life insurance policies
  • Executive deferred compensation plans
  • Stock options and executive stock
  • Transfer-on-death (TOD) investments
  • Pay-on-death (POD bank accounts

When setting up an estate plan, you should carefully review all beneficiary designations to ensure you want those individuals to receive your assets. However, you should also review these designations every few years to ensure they remain pertinent.

Selecting your beneficiaries

When reviewing your estate documents, you can change your beneficiaries at any time. Proper estate planning includes reviewing your documents periodically to give you peace of mind that everything aligns with your current wishes. A sound estate plan protects your assets. Keep that in mind when establishing the various aspects of your plan, along with when you decide to modify them after review.

When choosing beneficiaries, ensure you name primary and contingent beneficiaries and coordinate these designations with your will and trusts. By doing so, your executor won’t have difficult scenarios to resolve. Work with others to name the most appropriate persons and to use disclaimers when necessary.