Two weeks ago on this blog, we talked about the importance of going back to your estate plan now and then to make sure it is accurate and up to date with current laws and changing life circumstances. This week we will touch on a related issue that is easily overlooked, and can wreak havoc with an otherwise well-planned estate.
One of the biggest and most common estate planning mistakes that people make is forgetting to update their beneficiary designations for things like life insurance policies, retirement plans and even bank accounts.
Usually, you are asked to name a beneficiary when you first open these accounts, and in some cases the issue may never come up again after you have done so. However, failing to keep the named beneficiaries on these accounts up to date can potentially result in these assets passing to the wrong person after your death — even if your will says otherwise.
Thus, it is wise to keep a list of all of your named beneficiaries and review it regularly as your relationships and other circumstances change, just as you would for the rest of your estate plan.
Another potential problem can arise if your named beneficiary dies before you. When this happens, the assets may have to go through the probate process in order to determine who is entitled to receive them. Because probate can be both costly and time consuming, many people prefer to use other means of transferring assets to their heirs. Be sure to talk to a lawyer if you are interested in learning more about the different estate planning options that are available to you in California.
Source: The Wall Street Journal, “Dont make the No. 1 estate-planning goof,” Jan. 23, 2014