Creating a comprehensive estate plan ensures that your loved ones are protected and financially secure in the event of unforeseen circumstances, such as your death or incapacity. Once you have crafted your plan, it is crucial to periodically review and update it to align with your current needs, goals, and wishes. While you should review all aspects of your estate plan on a routine basis, your beneficiaries may need to be updated in between regular reviews. With that in mind, the Essex Junction attorneys at Unsworth LaPlante, PLLC help you recognize when you need to update the beneficiaries in your estate plan.
Beneficiaries vs. Heirs
The terms “beneficiary” and “heir” are frequently used interchangeably; however, they are not the same thing. A beneficiary is someone designated by you to inherit from your estate and may include relatives, friends, charities, or even your family pet. An heir is someone who is legally entitled to inherit from your estate according state intestate succession laws. Heirs typically include your spouse and blood relatives, such as your children, parents, and siblings. An heir may also be a beneficiary if designated as such in a decedent’s estate plan but that is not always the case. The family pet might be a designated beneficiary in a trust agreement but is certainly not a legal heir. Conversely, your daughter is a legal heir but if you disinherit her in your estate plan, she is not a beneficiary. Places where beneficiaries may be found in your estate plan include:
- Last Will and Testament
- Trust agreement
- Life insurance policy
- Retirement accounts
- Financial accounts designated as “payable on death” accounts.
Do I Need to Update My Beneficiaries?
Your entire estate plan should be reviewed on a routine basis. While there is no universal rule established, most estate planning attorneys recommend a review about every five years during your working years. During a routine review you should check your beneficiary designations and revise them if necessary. In between routine reviews, however, you may need to make an immediate update to your beneficiaries for a variety of reasons, such as:
- Adding new beneficiaries. You may want to immediately add a beneficiary if you recently got married, became a parent or had another child, became a grandparent, or feel strongly about financially supporting a charity. Your existing estate plan may address future beneficiaries in generic terms, such as “future born children,” but it is always wise to include a beneficiary by name in your estate plan.
- Removing beneficiaries. There are also situations that may cause you to want to immediately remove a beneficiary from your estate plan. If you were recently divorced, for example, you likely want to remove your former spouse as a beneficiary in your Will or trust agreement, financial accounts, retirement accounts, and life insurance policies. (Note that the terms of your divorce decree may prevent you from changing the beneficiary designation on a life insurance policy so discuss doing so with an attorney). You may also need to remove a beneficiary because the person passed away. Hopefully, you have a successor beneficiary designated; however, you now need to add a new successor beneficiary.
- A beneficiary reaches the age of majority. When a beneficiary is a minor, that child cannot directly inherit from your estate by law. That means they should not be named as a beneficiary in your estate plan. Once they reach the age of majority, however, you may want to immediately make changes to beneficiary designations on life insurance policies, financial accounts, and in other places within your estate plan.
- New accounts, policies, or documents. When you have a new account, such as a new retirement account, you need to add a beneficiary. Starting a new job is one scenario where new accounts are common. If you forget to designate a beneficiary, the assets may be held up in probate rather than going directly to loved ones upon your passing.
Do You Need to Review and Update Your Beneficiaries?
For more information, please attend one of our upcoming FREE webinars. If you need to review your beneficiaries in your estate plan, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.