We always hear of how an overlooked detail can wreak havoc to even the most carefully prepared plan and why your estate planning lawyer is your best insurance policy against those small errors. A perfect example is the beneficiary designation form. This week, we explore the many ways this one form can cause problems.
The Misleading Simplicity
It seems as though it’d be simple: fill out the form, get the proper signatures and then file it away with the rest of your estate planning documents. Maybe the simplicity is what gets us in trouble. Either way, the problems crop up after a death and after it’s too late to correct it with just a quick revision.
Believe it or not, the most common mistake is an unsigned beneficiary designation form. And if you updated it, having the new copy without the necessary signature will likely mean the old one goes into effect. Imagine the new spouse discovering that the former spouse now has a claim.
And don’t overestimate your mathematical skills – and don’t underestimate the value of a calculator.
Your Beneficiary Percentages
If you designate more than one primary beneficiary, you’ll allocate a percentage to each. Be sure your total equals 100%. In one instance, a participant designated two primary beneficiaries. She allocated one 50% for the other, she allocated 10%. That left 40%, which were designated to two contingent beneficiaries. The goal wasn’t for the four to share the account, unfortunately, the form hadn’t been properly prepared.
Your will shouldn’t battle your beneficiary designation. The beneficiary designation will win out every time.
Also, some mistakenly believe that a divorce or property settlement will void the former spouse as the beneficiary. A new spouse will automatically receive any retirement payouts; not so with the life insurance beneficiary. If a former spouse is named, the former spouse gets it.
Remember that life changes and your designations should be revised to reflect those changes. Births, deaths, marriages, divorces and adoptions can affect everything and should serve as reminders to update the designations.
Review Your Beneficiary Designation
We strongly encourage clients to do an annual review of not only their insurance policies, but their overall estate plan. You’d be surprised at what changes over the course of a year and how those changes can affect both you and your family.
Of course, you can memorialize those changes at any time, but getting into the habit for at least an annual review can provide peace of mind. Also, if your policies are with your employer, be sure to review them periodically as well. Be sure that they are signed and dated, that they “add up,” – and that they make sense.
Finally, while you want to revise and update as your family changes and grows, it’s always a good idea to keep the old designations in case there is a challenge to the current one.
Have questions about how life insurance policies can help protect your family? Contact our offices today and schedule your complimentary consultation.
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