Challenges with Assigning Beneficiaries

An essential aspect of estate planning involves assigning beneficiaries. When you pass away, assets from any trust you've created, retirement accounts, life insurance policies, and pensions will go to your chosen beneficiaries. Working with an attorney can help you anticipate potential challenges with assigning beneficiaries.

Attorney Christopher Heritage can help you understand the importance of beneficiary designations so you can make confident choices. He has extensive experience helping clients avoid common challenges with assigning beneficiaries. Whether you have questions about assigning beneficiaries or need help updating your estate plan, he's prepared to help you achieve your goals.

What Are Beneficiary Designations?

Estate planning usually involves assigning multiple beneficiaries. A beneficiary designation happens when you name a person who will directly receive one or more of your assets in the event of your death. Sometimes, people assume that the term beneficiary is the same as an heir. 

However, beneficiaries are different because the owner of a specific account chooses them during the owner's life. For example, a person can designate his wife as the beneficiary of his life insurance policy during his lifetime. Heirs inherit a person's estate when they pass away without a last will and testament or trust in place. 

By designating a beneficiary, you can ensure that the individual you choose will receive the assets in the account as long as the beneficiary is alive at the time of your death. Beneficiary designation forms are unique and vary depending on the account's administrator and the type of account. In a hurry to complete the forms, it can be easy to make a mistake that can result in your wishes not being carried out when you pass away. An attorney can help you evaluate each beneficiary designation form and ensure they are completed in a way that accurately reflects your preferences. 

Forgetting to Update Beneficiary Designations After a Life Change

Suppose you've experienced a major life change, such as a marriage, divorce, death, or the birth or adoption of a child. In that case, beneficiary designations are probably the last thing on your mind. Many people forget to update their beneficiary designations after a major change. Unfortunately, a simple mistake could prevent your intended beneficiary from receiving your assets after you pass away. 

One of the most common examples involves a spouse remarrying but forgetting to remove her ex-spouse as her assigned beneficiary. Even if the couple has already gotten divorced, her ex-spouse will receive the assets in the account unless she updates the beneficiary designation to be her current spouse. 

Even when a person's will states that their current spouse should inherit their estate, a court can still enforce a beneficiary designation for an ex-spouse. The current beneficiary designation will usually be the controlling factor. Working with an estate planning attorney can help you remember to update your estate plan every few years or after a significant life event.

Failure to Use Percentages When Assigning Beneficiaries

Another common challenge related to assigning beneficiaries involves using fixed dollar amounts. For example, a person may designate $75,000 of the assets in an account to her daughter. By the time she passes away, the value of the money in the account may have increased or decreased dramatically. 

She may have wanted her daughter to receive half of the assets in the account, but when she dies, $75,000 may only be a quarter of the assets in the account. Using a percentage is generally a safer option, especially if the account is tied to the stock market, such as 401(k) accounts. Using a percentage instead of a fixed dollar amount can ensure that your intentions will be enforced.

Assigning “All My Children” As Co-Beneficiaries

Many parents want their children to inherit their assets equally after they pass away. Sometimes, individuals will designate “all of my children”  as their beneficiaries. The managers of the bank accounts or insurance policies will usually follow through with this designation and divide the assets equally among the account holders' children. However, if one of the children passes away, an issue could arise regarding how his or her share should be divided among the surviving children. Additionally, there may be questions about whether an individual is considered the account holder's legal child. 

When assigning beneficiaries, it's always better to err on the side of clarity by using precise language. Completing a customized beneficiary designation can be beneficial if you would like your children to receive your assets equally. Alternatively, you may benefit from including a “per stripes” clause. Working with an estate planning attorney can help you clearly state the names of your children and how you'd like them to inherit your assets. 

Assigning Multiple Beneficiaries 

You may have multiple loved ones you'd like to become your beneficiaries. However, assigning various beneficiaries for the same account can cause problems in the future. Generally, it's advisable to name one beneficiary as your primary beneficiary. When completing beneficiary forms, it can be easy to accidentally name a secondary beneficiary as the primary beneficiary. 

For example, you may want your two adult children to receive 50% of the account's assets. If you name one child as the primary beneficiary, he or she will receive all the assets in the account. The second child will not receive any of the assets. Working with an attorney can help you complete the beneficiary designation forms in a way that ensures your goals and intentions will be carried out.

Discuss Your Estate Plan with a Beneficiary Attorney in Palm Springs