One of the most important reasons to have a comprehensive estate plan in place is to ensure that your loved ones are financially secure if something happens to you. Naming beneficiaries throughout your estate plan is part of accomplishing this goal. Failing to update your beneficiaries, however, can cause a catastrophic failure of your estate planning goals. With that in mind, the attorneys at Wilcox Attorneys, PA ask if your beneficiary designations are current?
Where Are My Beneficiaries Found in My Estate Plan?
Even the simplest of estate plans will include beneficiary designations in a Last Will and Testament. The more complex your estate plan is, the more places you are likely to find beneficiaries, such as in:
- Trust agreements
- 401(k) or IRAs
- Life insurance policies
- Financial accounts
- Investment accounts
Understanding Beneficiaries
Despite frequently being used interchangeably, the terms “beneficiary” and “heir” do not have the same meaning. An heir is a person who inherits from your estate according to the relevant state intestate succession laws. Heirs to your estate may include people such as your spouse, children, and other blood relatives. A beneficiary, on the other hand, is a person, entity, or even the family pet who has been designated by you to inherit from your estate. A beneficiary may also be a legal heir and vice versa but they are not the same thing.
A beneficiary can also be a successor or contingent beneficiary as well as a future beneficiary. A successor or contingent beneficiary is the beneficiary that is next in line to receive assets from your estate plan if the primary beneficiary predeceases you, rejects the inheritance, or cannot be found after a diligent search. Future beneficiaries are found in a trust agreement and are entitled to benefit from the trust assets after a set time frame or after a set number of distributions are made to the current beneficiary.
When to Update Beneficiary Designations
Once you have an estate plan in place, you should schedule routine reviews at least every five years to make sure the entire plan reflects your current needs and goals. In addition, however, there are times when you will need to make an immediate update to your beneficiary designations, such as:
- A beneficiary passes away. A well drafted estate plan should already include a successor beneficiary who will inherit if a primary beneficiary predeceases you; however, you may still wish to review the plan and, at a bare minimum, add in a new successor beneficiary.
- A new beneficiary is born. The same is true for future beneficiaries – a well written estate plan will use generic language such as “descendants” or “grandchildren” to include as yet born beneficiaries; however, it is best to include names and identifying information once a beneficiary is born to head off potential disputes down the road.
- A beneficiary reaches adulthood. Once a minor child reaches legal adulthood, he or she can legally inherit directly from your estate. Consequently, you should review your plan when a beneficiary reaches adulthood.
- New accounts, policies, or documents. People frequently never get around to filling out the beneficiary designations on new accounts, such as a new retirement account, which creates confusion and can lead to an unintentional intestate estate when you pass away.
- Marriage. Your own marriage may prompt an update to your beneficiary designations to include your spouse. You may also need to update your beneficiaries if a child or another existing beneficiary gets married because you may be concerned about how the marriage could impact an inheritance you are leaving to your child.
- Divorce. Unless you want your former spouse to continue to name named as the person who will inherit a sizeable portion of your estate, you need to update your beneficiaries after a divorce. Check with your attorney first, however, as the terms of your divorce may preclude you from reviewing a former spouse as a beneficiary on some documents.
Is It Time to Update Your Beneficiary Designations?
For additional information, please download our FREE estate planning worksheet. If you need assistance with updating your beneficiary designations, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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