One of the primary motivations for most people to create an estate plan is the desire to make sure that their assets end up in the right hands if something happens to them. These people to whom you gift assets in your estate plan are referred to as âbeneficiariesâ and can be found in many of your estate planning documents. For your plan to work as intended, however, your beneficiary designations must be current. With that in mind, the Essex Junction attorneys at Unsworth LaPlante, PLLC discuss the importance of keeping your beneficiary designations up to date.
Who Are My Beneficiaries?
A comprehensive estate plan accomplishes far more than just planning for the distribution of your money and assets after your passing. That means that your estate plan likely includes a variety of tools and strategies that are used to achieve your additional estate planning goals. Consequently, you may find beneficiaries in numerous and varied places throughout your estate plan, such as:
- Last Will and Testament. For most people, a Will is the first estate planning document they create. Your Will can distribute your entire estate to the people and/or entities named as beneficiaries in the document.
- Trust agreement. A trust may be incorporated into your estate plan for various reasons, including probate avoidance, asset protection, Medicaid planning, special needs planning, and incapacity planning purposes. All trusts operate under the same basic principle, allowing a Trustee to manage and protect assets that are intended to benefit a beneficiary or a group of beneficiaries.
- Life insurance. When you purchase a life insurance policy, you are required to list at least one beneficiary. That person will receive the proceeds of the insurance policy upon your death.
- Retirement plans. If there are funds left in a retirement account, such as an IRA or 401(k) at the time of your death, the person designated as your beneficiary will receive those funds.
- Jointly owned assets. Although a co-owner is not technically a beneficiary, it is best to include them when you are reviewing your beneficiary designations because they may automatically inherit the asset in question if something happens to you.
- Financial accounts. Bank accounts, investment accounts, and securities often allow the account owner to designate the account as a âpayable on death (POD)â account and name a beneficiary. The beneficiary has no legal ownership in the account assets while the owner is alive; however, the designated beneficiary will inherit the account upon the death of the account owner.
Why Might I Need to Update My Beneficiary Designations?
To make sure that your estate plan works as intended under various circumstances, you should conduct routine reviews every three to five years. Sometimes, however, you need to make changes to your plan right away because of a life change. It is particularly important to keep your beneficiary designations up to date because an out-of-date designation can wreak havoc within your estate plan. Imagine, for example, that you named your former spouse as the beneficiary of a $1 million life insurance policy while you were married to him/her. After the divorce, you forgot to change your beneficiary, meaning your ex-spouse just received $1million following your unexpected death after a car accident. Along with divorce, reasons to immediately review and update your beneficiary designations include things such as:
- The birth of a child.
- A child reached adulthood (and can now legally inherit from your estate).
- The death of a beneficiary.
- Purchase or sale of a business.
- A substantial change in the type and/or value of assets with beneficiaries.
- Your marriage (to add your new spouse) or the marriage of a beneficiary (to change the beneficiary).
Is It Time to Update Your Beneficiary Designations?
For more information, please attend one of our upcoming FREE webinars. If it has been awhile since you reviewed your beneficiary designations, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.
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