When to update beneficiary designations

On Behalf of | Jun 25, 2020 | Estate Planning |

Beneficiary designations may be an easily-overlooked part of estate planning for some people in Florida. People fill out these documents when they purchase a life insurance policy or set up a 401(k) or similar retirement plan and may forget about them even when something happens that should trigger a revision.

For example, one woman who named her three adult children as beneficiaries did not make any changes to her plan when one of them died. This meant that there was no indication as to whether she intended that child’s one-third of her IRA, worth more than $1 million, to go to her grandchildren by that child or to be split evenly between the two surviving children. The family ended up in litigation.

A common mistake is forgetting to update beneficiary designations after a divorce. This was the case for a man who discovered 15 years after his divorce that his ex-wife was still listed as a beneficiary on an old 401(k) at a job he had left years earlier. Some people may have several of these accounts. Furthermore, it is a mistake to assume that any errors on these documents can be fixed in the will or trust. Beneficiary designations override these documents. For these reasons, it is important to review all estate planning documents regularly.

An attorney may be able to help an individual create or update an estate plan. This might include considering whether most assets should be passed using a will or trusts and what documents should be in place in case the person becomes incapacitated. If the estate is fairly straightforward, a will may be sufficient, but if the person is naming a beneficiary who has special needs or who might be careless with funds, a trust might be a better option.