In life, we work hard to acquire wealth and assets to live a comfortable and fulfilling life. For most of us, we have every desire to pass down our legacy to those individuals or organizations that are important to us.
In the estate planning world, those individuals or organizations whom receives a decedent's money or property after they pass are called beneficiaries. A beneficiary is anyone who gains an advantage or profits from something.
A beneficiary would be a person who is eligible to receive distributions from a trust, a will, a retirement account, a bank account, or a life insurance policy.
Updating Your Beneficiary Designations
Many people procrastinate when it comes to establishing estate plans and sometimes little thought is given to a retirement account once it has been set up. Oftentimes people will create an estate plan and file away the documents only for them to never see the light of day for decades.
Have you checked your beneficiary designations recently? If not, there is a chance that one or more of your beneficiaries may not be who you think they should be. This is especially the case if you have divorced, remarried, or had children since you set up your beneficiaries.
Some people have a tough time getting around to writing a will and have just as much trouble updating their beneficiary designations. It's not that it's a difficult process, but one that is commonly overlooked. Your retirement accounts in particular are not governed by the provisions of your will, so it's especially important to keep these updated.
Estate planning attorneys have seen it time and again where retirement account owners and other clients who divorced and remarried neglected to update their beneficiary designations accordingly. This predicament can be extremely upsetting for the survivors who must endure a court battle to determine the legal beneficiary. Even still, sometimes the court's decision does not reflect what the deceased person would have wanted and an ex-spouse or an estranged child can receive a sizeable chunk from a retirement account or life insurance policy.
A similar situation occurs when there are children who are named beneficiaries but the documents were not updated to include children that were born after the initial designation. To prevent these situations from occurring, you should always update your beneficiaries whenever you get divorced or you experience a change in your family's status.
If you fail to document your beneficiary designations on bank accounts, retirement accounts and the like, your beneficiary may be determined by state or federal law, or by the plan document that governs your retirement accounts.
Many spouses expect that one will predecease the other and in effect, name each other as their designated beneficiaries. However, few contemplate the possibility of a simultaneous death; for example, where both spouses die in a car accident. In such cases the simultaneous death is addressed by state law, which will determine how the couple's assets are distributed. It's a good idea to have documentation in place that designates successor beneficiaries for both normal and extenuating circumstances to ensure that retirement account owners are the ones to decide who the successor beneficiary is.
It's a good idea to consider updating your beneficiaries whenever there is a marriage, divorce, or birth in the family, or whenever there is a major change in your personal circumstances or family relationships.
To learn more about changing a beneficiary designation, contact The Law Offices of Jack S. Johal today at (916) 229-8027 for your free consultation.