Designating the beneficiaries of various instruments in your estate plans is one of the most important things you can do when determining how your assets will be distributed following your passing. Yet, some Connecticut residents forget to designate beneficiaries, or worse yet, ignore this step thinking they have covered distribution with other estate documents. Both can effectively throw your estate plan into disarray.
Why naming beneficiaries is essential
A trust or a will in your estate planning documents does not automatically designate who will receive your assets after your death. Many people mistakenly believe that a will covers everything. Many investment accounts, life insurance policies, etc., have transfer-on-death (TOD) provisions. The assets in TOD accounts go to the designated beneficiary and supersede what your will states. Thus, if you have three children and indicate in your will that you want to give all a one-third share of your assets, that may not necessarily happen. If you only have one child listed as a beneficiary on TOD accounts, that child will inherit all of the assets.
While beneficiary designations provide a clear-cut way to pass on your assets, they can also create problems that include:
- Not naming a beneficiary
- Not naming a contingent beneficiary
- Failing to update beneficiaries regularly
- Selecting a trust as a designated beneficiary for retirement accounts
- Failing to review beneficiaries with experienced financial advisors
How periodic review keeps your estate current
Estate planning is not a one-and-done deal, especially if you have younger children. One of the goals of a periodic review is to make estate administration easier. As you age, your needs will change, and eventually, you won’t need guardians for your children. You may also accumulate additional wealth. You may want to establish trusts to ensure that your heirs’ needs are met if you pass suddenly, yet if you create revocable trusts, you can still change those designations.
The language in estate planning documents can sometimes be challenging to understand. Take the time to look through and evaluate the different parts of your plan.