Pay attention to your beneficiary designations

On Behalf of | Sep 5, 2022 | Estate planning |

When crafting an estate plan, many Californians think a will is all they need to leave assets to their heirs. Designating beneficiaries and periodically reviewing them is a more accurate way to ensure that you will leave your assets to the proper people after your passing.

Know which assets can bypass a will

Many financial accounts have beneficiary designations where you fill out a form listing your direct heir upon your death. These designations are effective even if you haven’t started the rest of your estate planning process. Retirement accounts like 401(k)s, IRAs, 403(b)s and similar financial instruments bypass wills when beneficiaries are named. Many financial institutions also allow owners to name beneficiaries for non-retirement accounts via TOD (transferable on death) or POD (payable on death) accounts.

Common beneficiary mistakes

However, many people make mistakes when filling out these forms. Some don’t name a beneficiary, thinking they don’t need to do so immediately. Others may name an inappropriate person, such as a minor child, who can’t inherit until age 18. Additional mistakes include:

  • Getting someone’s name wrong, or not spelling it quite right, resulting in a delay in a payout or even litigation
  • Forgetting to update beneficiaries when circumstances change
  • Not reviewing your beneficiary designations with advisors

The importance of careful estate planning

Estate planning is a process, not a one-time event, where you devise a plan and forget about it. Estates are all about your legacy and determining what is appropriate for your heirs at a particular time in their lives. An estate plan for parents of young children should be different than for those who have adult children.

Over time, you may want to change beneficiaries as many families fall out with one another. Special needs may also occur in the interim. Thus, setting up a schedule to periodically review your heirs and entire estate plan will ensure that your wishes are up to date.